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Low growth, politics pose risk to sub-Saharan countries - Moody's

Jan 10 2017 10:00
Lameez Omarjee

Johannesburg – Liquidity stress, poor economic growth and political risk are contributing to the negative outlook placed on sub-Saharan African (SSA) countries by rating agency Moody’s.

In a report issued by Moody’s on Monday, it explained economies of the region would continue to face commodity-induced liquidity stress, recurring fiscal deficits and challenging financing conditions.

"These will remain important credit constraints and underpin our negative outlook for Sub-Saharan Africa sovereigns overall," stated Lucie Villa, senior analyst and a vice-president at Moody’s.

A number of negative ratings actions were taken in 2016. Moody’s downgraded a third of the region’s 19 rated sovereigns by an average of two notches, the report stated.

Five of the seven sovereigns downgraded in sub-Saharan Africa in 2016 have negative outlooks.

Moody’s kept South Africa’s sovereign rating two notches above sub-investment grade at Baa2, with a negative outlook. The rating agency highlighted that slow economic growth and rising contingent liabilities, given government guarantees to state-owned enterprises, still pose risks for the sovereign.

READ: ALERT: South Africa is on Moody's watch list

The assigned negative outlook is mainly attributed to political uncertainty, low business confidence and risks to the implementation of structural reforms that could restore investor confidence.

“Sluggish growth in Nigeria and South Africa will greatly influence the region's outlook given the size of their economies,” stated the report. These countries both account for almost two-thirds of the GDP of the 19 rated sub-Saharan African sovereigns.

“Both economies will gradually recover from the impact of negative supply-side shocks, but growth will remain subdued.”

SA downgrade likely

In a previous commentary issued on November 25 2016, Moody’s stated that South Africa would likely be downgraded in the absence of structural reforms to ensure sustainable growth. Political infighting impeding government’s ability to implement these reforms would also be negative.

ALSO READ: Moody's on SA fiscal consolidation and public debt trajectory

Moody’s expects fiscal consolidation plans to have a positive impact. “However, fiscal consolidation policy will face obstacles, stemming in particular from subdued growth, related social demands and potential shocks from the weather and geopolitics.”

Sub-Saharan African countries dependent on commodity exports will face constrained economic activity in 2017, with a negative impact on liquidity. This mostly concerns Gabon, Mozambique, the Republic of the Congo and Zambia.

Political risk will continue to be a credit constraint, especially in parts of sub-Saharan African where presidential elections are to be held in 2017 and 2018.


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