Moody’s predicts negative outlook for Africa

Moody’s Investors Service has indicated that severe economic challenges the region will grapple with in the fallout from the coronavirus shock are fuelling a negative 2021 outlook for African sovereigns.

The international think- tanks have attributed the development to higher debt levels, weaker debt affordability, and low buffers that pose significant challenges.

The researchers say given limited institutional capacity, growth recovery will vary throughout the region. SSA in a report published this week says the sovereign growth recovery will be slow, with far- reaching implications for already weak revenue generation.

The report further says the 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 percent of GDP in the near to medium term,” said Vice President - Senior Credit Officer, Kelvin Dalrymple 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,” he added.

Moody’s says sovereigns also face a wide range of institutional and governance challenges, limiting their ability to deal with the coronavirus shock.

The effects of the pandemic that have triggered higher unemployment and income inequality, along with latent or rising domestic political risks, will likely increase social risks across several countries. On the other hand, the growth recovery will vary across Sub- Saharan Africa, with concentrated and energy exporting economies to recover at a slower rate due to low energy prices. Meanwhile, the nonenergy 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. Moody’s anticipates that the tourism- dependent economies will recover slowly, with lower than historical growth forecast for Kenya, Tanzania and Namibia.