Sub-Sa­ha­ran credit crunch

The Star Early Edition - - NEWS - Wise­man Khuzwayo

CREDIT-WOR­THI­NESS of sov­er­eigns in sub-Sa­ha­ran Africa has an over­all neg­a­tive out­look for 2017, “re­flect­ing the liq­uid­ity stress fac­ing com­mod­ity-de­pen­dent coun­tries, sub­dued eco­nomic growth and per­sis­tent po­lit­i­cal risk,” Moody’s Investors Ser­vice said in a re­port on the re­gion yes­ter­day.

Lu­cie Vella, vice-pres­i­dent at Moody’s, said the re­gion’s economies would con­tinue to face com­mod­ity-in­duced liq­uid­ity stress this year.

“By end 2016, Moody’s had down­graded a third of the re­gion’s 19 rated sov­er­eigns by an av­er­age of two lev­els ver­sus 29 sov­er­eigns glob­ally, or 22 per­cent of 134 coun­tries Moody’s rates.”

Moody’s said most of the 19 sub-Sa­ha­ran coun­tries with Moody’s rat­ings had started fis­cal con­sol­i­da­tion plans that would have a positive ef­fect in 2017.

It said Botswana was a no­table ex­cep­tion, with the gov­ern­ment con­tin­u­ing with a counter-cycli­cal pol­icy that started in 2015.

Moody’s said gross do­mes­tic prod­uct growth among Moody’s-rated coun­tries was fore­cast at 3.5 per­cent this year, from 1.5 per­cent in 2016.

Na­tions de­pen­dent on com­mod­ity ex­ports would see con­strained eco­nomic ac­tiv­ity.

Slug­gish growth in Nige­ria and South Africa would greatly in­flu­ence the re­gion’s out­look, given the size of their economies.

How­ever, the World Bank, in its 2017 world out­look re­port on Tues­day, said sub-Sa­ha­ran African growth was ex­pected to pick up mod­estly to 2.9per­cent in 2017, as the re­gion con­tin­ues to ad­just to lower com­mod­ity prices.

Growth in South Africa and oil ex­porters was ex­pected to be weaker, while growth in economies that are not nat­u­ral-re­source in­ten­sive should re­main ro­bust.

It said growth in South Africa was ex­pected to edge up to a 1.1 per­cent pace this year, while Nige­ria is fore­cast to re­bound from re­ces­sion and grow at 1 per­cent.

Last week, Moody’s said it was more likely to make more rat­ing calls on South Africa, Bri­tain and China, among oth­ers, this year as ris­ing po­lit­i­cal risk and debt lev­els push the num­ber of coun­tries on a down­grade warn­ing to a record high.

“A quar­ter of the sov­er­eigns are on a neg­a­tive out­look, which is the high­est pro­por­tion we’ve had since 2012, the peak of the euro cri­sis,” said Alas­tair Wil­son, the man­ag­ing direc­tor of sov­er­eign risk.

Top names on the watch list in­clude Bri­tain, Italy, China, Mex­ico and Brazil.

South Africa is a key de­ci­sion too. Moody’s rates it at one notch higher at Baa2 than S&P Global Rat­ings and Fitch, which have it on the last rung of “in­vest­ment grade”.

Wil­son added that South Africa’s in­sti­tu­tional strength had been bol­stered by the withdrawal of fraud charges against the fi­nance min­is­ter.

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