Sub-Saharan Gloom

Moody’s predict bad outlook for region

Credit Ratings and Research Agency, Moody’s has predicted tough times ahead for the Sub-Saharan region in terms of sovereign credit worthiness*.

A report published this week by the American-based Investors Service states that its 2020 outlook for sovereign credit worthiness remains negative.

Moody’s attributes this to the limited progress made in reducing risk related to increased debt burdens (a large amount of money that a country owes to another which they are struggling to repay)and debt servicing.

“While growth will remain solid, it will not meaningfully buttress income nor increase economic resilience,” predicts the respected institution, further adding that the external environment is becoming increasingly unpredictable, which aggregates existing challenges.

The rating agency warns even with the region not highly integrated into the global economy through direct trade linkages, it remains exposed through its sensitivity to changes in commodity prices and financial conditions.

“The limited capacity of most governments to respond to even modest negative external shocks exacerbates the region’s sensitivity to the more negative global environment,” it states.

Moody’s Investors service has identified three key areas which underpin its negative outlook for Sub-Saharan Africa (SSA).

These are: worsening external environment, weak government finances and subdued GDP growth.

It is reported weak government finances will continue to pose a constraint, with the rise in debt and interest burdens since 2015 having weakened the fiscal profiles of most Sub-Saharan region sovereigns.

“We expect modest fiscal consolidation for the region, with the median fiscal deficit improving to 3 percent of GDP in 2020 compared with 3.3 percent in 2019,” continues the report, further adding that while this will allow debt burdens to stabilize, fiscal profiles will remain weak overall and leave SSA sovereigns with limited capacity to employ counter fiscal policies.

The region’s debt burden is expected to decline to 51 percent of GDP this year from 54.5 seen in 2019. However, it remains significantly higher than the 40.4 percent recorded five years ago.

While there are some intra-regional differences, including Botswana, whose debt burden remains low, the general trend, according to Moody’s, implies that Sub Saharan African countries have less fiscal spaces to absorb future shocks.

Regarding GDP growth, the international rating agency predicts GDP will remain steady, but will not meaningfully buttress per capita incomes or support fiscal consolidation.

“We expect economic growth to accelerate modestly, with regional real GDP growth rising to 3.5 percent in 2020, compared with 3.1 percent in 2019,” says Moody’s.

It further outlines that the regional average is weighed down by sluggish growth in the region’s largest economies, Nigeria and South Africa, while growth in the rest of SSA will accelerate to 5.3 percent, albeit with significant variations by sub-region and economic structure.

It is alsoenvisioned that there will be a recovery in growth for commodity exporters. This is anticipated to be robust in non-energy commodity exporters like Niger, Ghana and Botswana.

A sovereign credit rating is an independent assessment of the creditworthiness of a country or sovereign entity.

Sovereign credit ratings can give investors insights into the level of risk associated with investing in the debt of a particular country/region including any political risk