Moody’s Projects Tougher Times For Sub-Saharan Africa

Kelvin Dalrymple

MOODY’S INVESTORS Service in a report published recently has indicated that the negative 2021 outlook for sub-Saharan African (SSA) sovereigns reflects the severe economic challenges that the region will grapple with in the fallout from the coronavirus shock.

According to the service, higher debt levels, weaker debt affordability and low buffers pose significant challenges given limited institutional capacity; adding that growth recovery will vary throughout the region.

“SSA sovereigns’ growth recovery will be slow, with far-reaching implications for already weak revenue generation. Lower overall economic growth and revenue, coupled with higher government expenditure will also lead to wider fiscal deficits and higher debt for the region,” it noted.

“Most sub-Saharan African governments’ debt burdens will stabilize at materially higher levels in 2021, with the average debt burden for the region at around 64% of GDP in the near to medium term,” says Kelvin Dalrymple, Vice President – Senior Credit Officer 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.”

It added that sub-Saharan African sovereigns also faced a wide range of institutional and governance challenges, limiting their ability to deal with the coronavirus shock; while it also noted the effects of the pandemic that had triggered higher unemployment and income inequality, along with latent or rising domestic political risks, which would likely increase social risks across several countries.

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. Non-energy 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. On the other hand, tourism-dependent economies will recover slowly, with lower than historical growth forecast for Kenya, Tanzania and Namibia.

Ghana’s Situation

In the case of Ghana, whose economy faces pressure from the rising debt, crossed the 70 per cent mark (GH¢273 billion as at September 2020), the report highlighted. “In SSA, higher external vulnerability indicators – which are a measure of short-term debt and upcoming external debt maturities against international reserves – will be more challenging for sovereigns outside of monetary unions. Zambia and Ghana will see the greatest EVI pressures, with 2021 levels forecast to be 509% in Zambia and 143% in Ghana,” it noted.

Though the country recorded a rebound in growth, her debt burden is expected to rise, beating her peers in the sub-region.

Moody’s also projected Ghana could be ranked second in sub-Saharan Africa with the greatest External Vulnerability Stress pressures; adding that revenue mobilization was expected to remain low.

Additionally, the rating service announced that the local currency’s depreciation would add to the cost of debt loads and lower debt affordability especially taking into consideration the fact that over 50% of Ghana’s debt was owed to external investors.