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Fitch Says Rising Sovereign Debt Could Hit Ratings in Sub-Saharan Africa

A rise in government debt/GDP would be a potential negative rating action trigger for most sub-Saharan Africa (SSA) sovereigns, particularly those whose ratings are on negative outlook, said Fitch Ratings.

“Efforts to contain COVID-19 outbreaks have hurt economic activity, weighing on tax revenues, even as public expenditure pressures have risen with demands for additional healthcare spending and stimulus,” the agency said in a new report on Thursday.

General government debt/GDP rose between 2019 and 2021 in all Fitch-rated SSA sovereigns apart from Angola, Zambia and Republic of Congo.

In Angola and Congo, this reflected in part the effects of higher oil prices in 2021, while in Zambia nominal GDP growth was strong and exchange-rate appreciation boosted nominal GDP relative to US dollar-denominated debt.

Public debt trajectories in SSA sovereigns will see greater differentiation over the next two years after a general deterioration in public finances over 2020-2021, according to Fitch.

“Our forecasts for SSA GG debt trajectories diverge more widely over 2022-2023, as pandemic-related pressures recede, and economic recoveries gather momentum. We expect general government debt/GDP in 2023 to fall below 2021 levels in nine of our 19 rated SSA sovereigns.”

The biggest debt/GDP declines will be seen in Seychelles and Cabo Verde driven by the delayed recovery in global tourism flows boosting nominal GDP.

Strong commodity prices–particularly for oil–will support government revenues and nominal GDP in Angola, Congo and Gabon, helping to bring down debt ratios.

Persistent low growth and risks to socio-political stability have been impediments to stabilising debt trajectories in sovereigns such as South Africa and Namibia.

Higher US interest rates may also hamper consolidation, to the extent that they translate into higher financing costs for African governments, it added.

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