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Harare – Growing financial support and programmes by the IMF for most commodity exporting countries in Africa is evidence of a weakening global economy, ratings agency, Fitch says, adding that commodity prices and political factors will continue to influence negative ratings decisions.
The International Monetary Fund, which said on Thursday that South Africa’s economy would grow by a lowly 0.1%, approved financial support for Malawi and Tunisia among others.
The IMF is in talks with Zimbabwe and Zambia over rescue packages. Both these countries are resource heavy economies that rely on platinum, diamonds, gold and copper for export earnings.
Calling for investment
Fitch said: "Support from the IMF for frontier markets has been evident this year, with programmes agreed to for Iraq, Sri Lanka and Tunisia and details are under discussion for countries such as Angola and Zambia.
It emphasised that this reflected a weakening in the global economic outlook as sovereigns are now hard pressed for breathing space as revenues quickly wilt.
Other experts have urged diversification from resources, calling for investment in infrastructure and a boost in commerce and trade.
“This reflects the weakening economic outlook and fiscal and external position for many of these countries,” said Fitch.
The statement continued: "Persistently lower commodity prices and political factors were the main drivers for the downward trend in frontier market sovereign ratings over the last 18 months and will remain key risks in the second half of this year.”
South Africa is among the countries that still have a negative ratings downgrade looming although the continent’s third largest economy has managed to avert junk status from ratings by other agencies. SA now has until December to institute reforms and re-assure investors and rating agencies that it will be able to turn around the economy.
"Government debt is higher than in pre-boom years in some frontier markets including Angola, Mozambique and Zambia," added Fitch.
Fallen far short
The agency said fiscal revenues in Angola, Gabon and Nigeria, the biggest economy in Africa, have declined 50% or more. Mozambique and Zambia as well as Nigeria have received negative rating actions by Fitch a short while ago.
Governments have reacted to this through fiscal consolidation measures, including cutting capital expenditure, subsidy reforms and measures to mobilise non-commodity revenue although Fitch says these efforts have mostly fallen far short of offsetting the loss in commodity revenue.
Others had resorted to interest rate actions although the IMF cautioned South Africa to hold off on interest rate hikes “unless core inflation or inflation expectations” rise.
“The impact of past policy hikes is still filtering through and the weak economy should keep inflation contained,” said the IMF.
