Sub-Saharan Africa’s (SSA) growth is expected to remain in line with previously forecasted growth trends, amid persistent pandemic risks, but debt challenges among sovereigns continue to rise, according to Fitch Ratings.

The pandemic-related deterioration of balance sheets among sovereigns currently reflects in the downgrade of seven of the 19 SSA sovereigns being on Negative Outlook. However, recent upgrades of Benin, Cote d’Ivoire, Gabon and Seychelles show that for some countries the impact of the pandemic has been less severe than expected.

In East Africa, countries such as Kenya, Rwanda and Uganda are now with Negative Outlooks which previously were all ‘B+’. This reflects worries about the countries’ ability to halt the rise in government debt, Fitch said.

For example, in Kenya, “a projected increase in external public debt levels poses a key downside risk, while the August 2022 presidential elections cloud the outlook,” according to analysts at FocusEconomics.

In West Africa, growth in Benin (B+/Stable) and Cote d’Ivoire (BB-/Stable) will remain strong and debt is below the regional median, Fitch Ratings said. However, Ghana (B/Negative) faces a high interest burden and the recent sharp rise in Eurobond yields complicates refinancing.

According to Fitch, Ghana’s external debt-servicing costs is expected to fall from US$3.2 billion in 2021 to US$2.2 billion in 2022. However, as current-account deficit continue to widen, combined with private debt payments, this will mean a gross external financing requirement of US$7.3 billion, Fitch noted.

“Ghana’s effective loss of access to international markets increases risks to its ability to meet medium-term financing needs.”
Fitch Ratings

Despite the fact that Ghana has sufficient liquidity to cover near-term debt servicing without market financing, Fitch noted that “there is a danger that non-resident investors in the local bond market could sell their holdings… placing significant downward pressure on its reserves.”

Main Oil Exporters to Benefit from Higher Prices

The problem takes on a different turn in southern Africa where Lesotho (B/Negative), Namibia (BB/Negative) and South Africa (BB-/Negative) are struggling to stabilise public finances amid low growth as well as socio-political challenges.

Particularly, Mozambique’s (CCC) rating, for instance, could be improved in the medium term by large natural gas projects, “but an insurgency and governance challenges pose risks.”

Furthermore, Ethiopia (CCC) and Zambia (RD) are seeking debt restructuring under the G20 Common Framework. Pertaining this move by the two countries, a recent report exposed the “hidden” Chinese debts of countries like Zambia and Ethiopia, which according to analysts is likely to complicate their ongoing debt relief talks under the G20’s Common Framework.

The main oil exporters Angola (CCC), the Republic of Congo (CCC), Gabon (B-/Stable) and Nigeria (B/Stable) have already gone through a period of adjustment since the 2014-2015 oil price crash and will benefit from higher prices, Fitch said.

According to Fitch, Cameroon (B/Stable) has handled the pandemic notably well, with barely a change in government debt. Also, the small tourism-dependent islands Cabo Verde (B-/Stable) and Seychelles (B+/Stable) are expected to benefit from the tourism recovery, although there may be further delays.

Overall, the rating outlook for SSA sovereigns is considered as neutral, Fitch noted, adding that the growth of countries still have the potential to expand amid pandemic-related risks.