Slow growth, credit risk to sub-Saharan Africa – Moody’s

Sub-Saharan Africa faces risks to its credit quality from slow growth and low prices of commodities, a dominant revenue source for the region, growing pressure on government budgets and debt levels, Moody’s has said in a new report.

After two decades of robust growth, sub-Saharan Africa is undergoing a protracted slowdown linked to the global downturn in commodity prices caused by China’s economic slowdown.

Governments in the region also face higher debt servicing costs due to depreciation.

All sub-Saharan African countries are projected by Moody’s to face a fiscal deficit in 2016.

Highlighting sub-Saharan Africa’s vulnerability to lower commodity prices, Moody’s said that apart from Kenya, Namibia and Senegal, all its rated Sub-Saharan African economies are experiencing a slowdown in growth this year, with Angola, Gabon, Ghana, Nigeria and Zambia having experienced the sharpest slowdown, after growing rapidly before the commodity price shock.

Oil exporters such as Nigeria, Angola, Cameroon, Gabon, the Republic of the Congo, South Sudan and Sudan, have seen the weaker growth from low oil prices, spread into other sectors of the economy including construction and services, while other commodity producers such as Ghana and Zambia, are grappling with domestic shocks from past budget slippages and imbalances.

The report “Sovereigns – Sub-Saharan Africa: Slowing Growth, Rising Fiscal, External Pressures Weighing on Credit Quality”, was launched at the annual meetings of the African Development Bank (AfDB) in Lusaka, Zambia.

The agency said the weaker growth outlook in sub-Saharan Africa poses a credit risk for the region whose once healthy economic growth prospects helped in attracting foreign capital and investment and to mitigate pressure on credit quality from poverty, lack of development and weak institutional capacity.

“Sub-Saharan Africa faces a difficult near-term outlook. Commodity exporters in the region are likely to face a third consecutive year of weaker growth in 2016. Debt burdens are rising, while external resilience is strained as rising current account deficits, depreciating currencies and declining foreign exchange reserves further complicate the task for policymakers,” Rita Babihuga, Assistant Vice President –Analyst and co-author of the report said.

By Emmanuel Odonkor

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