Moody’s: 2019 negative outlook for Sub-Saharan African sovereigns reflects ongoing fiscal and external challenges despite easing credit pressures

London, Sub-Saharan African sovereigns’ negative outlook for 2019 reflects credit challenges that stem from fiscal and external vulnerabilities amid tightening global liquidity conditions and rising global trade tensions, despite gradually improving growth prospects, Moody’s Investors Service said in a report today.

The report, “Sovereigns — Sub-Saharan Africa: 2019 outlook negative as fiscal, external challenges persist despite easing pressures,” is available on moodys website

Going into 2019, 15 of the 21 sovereigns that Moody’s rates in the Sub-Saharan Africa (SSA) region have a stable outlook, while six hold a negative outlook.

“Our negative outlook for sovereigns in Sub-Saharan Africa is driven by persistent credit challenges related to their ongoing fiscal and external vulnerabilities,” said Daniela Re Fraschini, Assistant Vice President — Analyst and author of the report. “That said, we expect credit pressures to ease relative to previous years, despite a more challenging external environment, as credit profiles display some resilience at their lower rating levels.”

Moody’s expects SSA’s gradual economic recovery of 2018 to continue this year, with regional real GDP growth accelerating to 3.5% in 2019 from an estimated 2.8% in 2018. The region’s two largest economies – Nigeria and South Africa – will recover slowly but growth in these two countries will remain well below levels seen in the first half of the decade. In South Africa, Moody’s projects that real GDP growth will reach 1.3% in 2019 from an estimated 0.5% in 2018. In Nigeria, growth will reach 2.3% in 2019 from an estimated 1.9% in 2018.

Most governments across the region plan further fiscal consolidation this year, although progress remains gradual amid still soft growth conditions in some cases. The presence of IMF programs throughout the region supports the fiscal outlook and reform impetus for 2019.

With few exceptions, Moody’s expects government debt ratios to deteriorate only marginally or stabilize in 2019, reflecting ongoing fiscal consolidation and the positive impact of higher growth rates on the denominator of debt-to-GDP. That said, debt trajectories for a number of sovereigns remain vulnerable to lower-than-expected growth, exchange rate depreciations and contingent liability risk from weak state-owned enterprises. Debt affordability will continue to weaken in a number of countries.

Exposures to tightening global financing conditions vary across the region. Sovereigns with large current account deficits, high external debt repayments and large shares of foreign-currency debt are likely to continue to experience external pressures.

Political risk remains a key credit constraint for several SSA sovereigns. The sources of political risk — ranging from domestic civil unrest, conflicts, succession risk, or simply from policy unpredictability — and their credit implications vary across the region.