SSA Countries with Negative Outlook Risk Downgrades

Due to the steep rise in debt profiles among the sub-Saharan African (SSA) countries, Fitch Ratings has said in the latest report on the bloc that countries with negative outlooks risk downgrades.

It specifically noted that triggers for a downgrade in its Ghana case are more likely as a result of deterioration in external or fiscal liquidity conditions. Public debt trajectories will see greater differentiation over the next two years after a general deterioration in public finances over 2020-2021, says Fitch Ratings.

A rise in government debt/GDP would be a potential negative rating action trigger for most SSA sovereigns, particularly those whose ratings are on a negative outlook. Efforts to contain Covid-19 outbreaks have hurt economic activity, weighing on tax revenues, even as public expenditure pressures have risen with demands for additional healthcare spending and stimulus.

General government (GG) debt/GDP rose between 2019 and 2021 in all Fitch-rated SSA sovereigns apart from Angola (B-/Stable), Zambia (RD) and the Republic of Congo (CCC).

In Angola and Congo, this reflected in part the effects of higher oil prices in 2021, while in Zambia nominal GDP growth was strong and exchange-rate appreciation boosted nominal GDP relative to US dollar-denominated debt.

Our forecasts for SSA GG debt trajectories diverge more widely over 2022-2023, as pandemic-related pressures recede and economic recoveries gather momentum. We expect GG debt/GDP in 2023 to fall below 2021 levels in nine of our 19 rated SSA sovereigns.

In some countries, like Benin (B+/Stable), this will be helped by rapid economic growth. The biggest debt/GDP declines will be seen in Seychelles (B+/Stable) and Cabo Verde (B-/Stable), driven by the delayed recovery in global tourism flows boosting nominal GDP.

Strong commodity prices – notably for oil – will support government revenues and nominal GDP (the denominator in the debt/GDP ratio) in Angola, Congo and Gabon (B-/Stable), helping to bring down debt ratios.

Improvements in liquidity and fiscal (and external) performance, helped significantly by the rebound in oil prices, contributed to our recent decisions to upgrade ratings for Angola and Gabon.

Fitch analysts revised ratings to ‘B-’ with a Stable Outlook, from ‘CCC’, in August 2021 for Gabon and January 2022 for Angola.

The likelihood of debt stabilisation was also a factor in Fitch analysts’ decision to upgrade Benin to ‘B+’, from ‘B’, in October 2021. The ebbing of risks associated with the pandemic has also factored into recent positive rating actions.

General government debt/GDP will increase for the remaining 10 Fitch-rated SSA sovereigns between 2021 and 2023. This will include eight of the 10 countries with the largest increases in debt/GDP ratios between 2019 and 2023, pointing to the challenge of restoring public finance discipline following a particularly severe economic shock.

Persistent low growth and risks to socio-political stability have been impediments to stabilising debt trajectories in sovereigns such as South Africa (BB-/Stable) and Namibia (BB/Negative).

Meanwhile, some previously fast-growing economies in east Africa could slow if higher public debt constrains their ability to pursue public investment-led growth. Slower growth would, in turn, hinder fiscal consolidation.

Debt: Higher US Rates to Translate to Steep Financing Cost for Africa

Higher US interest rates may also hamper consolidation, to the extent that they translate into higher financing costs for African governments.

Ghana’s loss of market access following a pandemic-related surge in government debt was a driver of our decision to downgrade its rating to ‘B-’/Negative from ‘B’/Negative in January 2022.

The rating note indicates that debt dynamics also led Fitch analysts to revise the Outlook on Rwanda’s ‘B+’ rating to negative, from stable, in July 2021.