Large Jump in Public Debts to Hold Back SSA Recovery
Sub-Saharan Africa region’s economic recovery could hold back over a large jump in public debts, Fitch said in a report. The increase in debt level in the region is led by Nigeria with bumpy debt size amidst its new borrowing plan.
Fitch said that median gross domestic products (GDP) for sub-Saharan Africa (SSA) sovereigns rated by Fitch Ratings fell by 2.6% in 2020, a more moderate decline than in any other major region.
According to Fitch, recovery will bring median growth to 4.3% in 2021 and 5% in 2022, which is fairly modest relative to earlier trend growth, considering the boost from the base effect, as growth is held back by challenging public finances.
However, it added that median public debt in the region leaped to 68% in 2020 from 56% in 2019, and is likely to rise further to 75% in 2022. Ghana, Nigeria, among other African countries have been ramping up foreign currency loans in recent times to cushion the effects of the outbreak of the pandemic.
However, it was noted that sovereigns in the region have shown to be on recovery path, though sluggish when compare with the International Monetary Fund (IMF) revised projections.
IMF upgraded global economic growth forecast to 6% from 5.5%, noting the vaccine discovery and global inoculation speeds. Nigeria; the largest economy in Africa is projected to grow GDP by 2.5% as oil prices bucked bearish trend.
Though oil has maintained uptrend since the beginning of the year, rising more than $20 per barrel above $40 per barrel used to prepare budget 2021.
In spite of this, oil revenue has been warmish as average production volume of 1.72 million barrels per day was reported by the National Bureau of Statistics (NBS) in the first quarter.
In the fourth quarter, Nigeria’s economy jumped 0.11%, and 0.51% in the first quarter of 2021, which signpost possibility that 2.5% GDP growth may not be feasible is macroeconomic variables remain.
Slow Vaccine Rollout Raises Risks SSA
Fitch explained in the report that slow vaccination has been noted to impact economic rebound in the region. It said Covid-19 infection rates are relatively moderate – infections in South Africa declined after a second wave earlier in 2021, and infections in Cabo Verde and Seychelles are still high – but risks from the pandemic persist, as vaccination programmes proceed slowly.
Fitch said many SSA sovereigns will achieve vaccination rates that contain the risk of new infection waves only in 2022 or later.
“Such new waves would further add to human suffering and exacerbate financing pressures, but the impact on creditworthiness may be subdued because policymakers have learned to better target containment measures and economies have adapted to the pandemic”, it added.
Global Stimulus and Global Initiatives Supportive but Restructuring Risk Remains
In the report, the Ratings stated that the region has benefitted from very supportive global financial conditions, which have allowed a number of countries, including Benin, Cote d’Ivoire and Ghana, to access international bond markets at benign conditions.
It quickly added that any move towards tightening in advanced markets could complicate further market access. Global support initiatives will help to alleviate immediate liquidity pressures, including via the Debt Service Suspension Initiative (DSSI, now extended until end-2021), the allocation of new IMF Special Drawing Rights, and ready availability of IMF support.
“A summit on financing Africa in Paris could bring further support”, it said. As expected, the International Monetary Funds promised to extend $33 billion to African countries.
However, global policymakers are encouraging countries to address high debt burdens through the G20 common framework, and Chad, Ethiopia and Zambia have applied.
“A common framework treatment could entail a restructuring of debt to the private sector which would likely qualify as a distressed debt exchange”, it was added.
Large Jump in Public Debts to Hold Back SSA Recovery
