Medium-term outlook bleak for sub-Saharan Africa – Fitch

SOVEREIGN debt levels and debt servicing costs would continue to rise steadily in subSaharan Africa in 2016 and 2017, Fitch Ratings agency warned yesterday.

It said the median general government debt-to-GDP ratio for the region rose from 30.2 percent in 2011 to 49.7 percent last year.

“Our country- by- country fiscal projections imply that the median ratio will continue rising, to 51.4 percent in 2016 and 53.3 percent in 2017,” said Jan Friederich, Fitch’s senior director for sovereigns.

“The high share of concessional debt means that interest costs are not excessive for most countries in the region, but their increase makes fiscal consolidation more challenging.”

Friederich said two key drivers for sub-Saharan debt were the commodities slump that had seen export earnings decline sharply and continued reliance by certain states on infrastructure investment to drive up GDP growth.

For example, Ghana planned to use the proceeds of this month’s $ 750 million Eurobond to refinance existing debt and fund capital investments.

And, in Rwanda, Uganda, Lesotho, Mozambique and Ethiopia, central government capex was set to exceed 10 percent of GDP this year.

Friederich said the debt/GDP ratio was projected to increase for all Fitch-rated sub-Saharan sovereigns other than the Seychelles in the period ending 2017.

Mozambique was forecast to show the biggest increase at 60 percent and Nigeria the smallest at 3.7 percent.

Most sub-Saharan nations had relatively low levels of debt after benefiting from restructuring and debt forgiveness in the 2000s. But rising debt has now pushed up median general government interest expenditure as a proportion of revenues, from 4.8 percent in 2011 to 9.1 percent this year.

Fitch projected that it would reach an average 10 percent for the region in 2017.

The agency warned: “Rising debt servicing costs are an obstacle to fiscal consolidation among sub- Saharan sovereigns, and larger or unchanged deficits will lead to further increases in public debt, pushing debt ratios higher.

“While debt-funded infrastructure investment will help remove constraints on longterm growth, its benefits may not fully materialise until governance and business environments improve.

As such, its near- term impact on sovereign debt ratios will be negative.” – ANA