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Moody's: SA's future looks brighter - if it can keep the lights on

Jan 14 2019 17:38
Marelise van der Merwe

Gradually improving growth prospects across sub-Saharan Africa means 15 of 21 sovereigns rated by Moody's have a stable outlook, versus six with a negative outlook – but the region's major economies, including SA, still face substantial risks.

This is according to a new report from the ratings agency, titled Sovereigns - Sub-Saharan Africa: 2019 outlook negative as fiscal, external challenges persist despite easing pressures, available on www.moodys.com.

The report does not constitute a ratings action, the agency emphasised.

SA stabilising

According to the report, SA has a more stable outlook going into 2019, thanks to a gradual strengthening of institutions and increasing transparency.

"We stabilised the outlook on South Africa's […] ratings," the report reads.

"We concluded the review for downgrade… confirming the rating and stabilising the outlook, reflecting our view that the previous weakening of the sovereign's institutions would gradually reverse under a more transparent and predictable policy framework."

The report foresees modest growth for South Africa in the year ahead.

However, this will be hampered by struggles in the labour and electricity sectors.

'Unstable power supply'

"Growth in […] South Africa will see a modest acceleration, but will remain well below levels seen in the first half of the decade. In South Africa, we project real GDP growth will accelerate to 1.3% in 2019 from an estimated 0.5% in 2018 as agricultural output recovers and a more stable political environment leads to higher investment.

"Growth will continue to be hampered by rigidities in the labour market and insufficient and unstable power supply."

'No visibility' on land reform

The report also flagged "no visibility on the outcome" of land reform as hitting investor sentiment.

Overall, the report predicts debt burdens will stabilise or rise marginally across the sub-Saharan region.

"Over the past five years, public debt-to-GDP increased by at least 15 percentage points in almost two-thirds of rated SSA sovereigns and is now above 50% of GDP in a large part of the region," it notes.

Debt, recovery and risk

"In 2018, the debt increase was particularly pronounced because of large fiscal deficits (eSwatini), significant currency depreciation (Angola, Zambia) and the crystallisation of contingent liabilities at a state-owned oil company (Angola)."

According to a statement from Moody's released on Monday afternoon, the agency 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 - namely 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.

"Our negative outlook for sovereigns in the region is driven by persistent credit challenges related to 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."

Political risk remains a key credit constraint for several SSA sovereigns, Moody's added.

"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."

moody's  |  south africa  |  sub saharan africa  |  debt  |  gdp  |  ratings  |  economy  |  growth
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