SSA’s Fragile Growth, Fiscal Challenges and Heightened Political Risk Drive Negative Outlook in 2018

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Thursday, January 18, 2018 /2:30PM /Moody’s Investors Service

The outlook for sovereign ratings in Sub-Saharan Africa is negative for the coming 12-18 months, driven by the region's subdued and fragile growth recovery, which also weighs on the prospects for fiscal consolidation and debt stabilization, Moody's Investors Service said in a report today.

The report, "Sovereigns -- Sub-Saharan Africa, 2018 outlook negative amid subdued growth, elevated debt and political risks", is now available on
www.moodys.com. Moody's subscribers can access this report via the link at the end of this press release. The research is an update to the markets and does not constitute a rating action.

"Our negative outlook for Sub-Saharan African sovereigns reflects the region's subdued growth recovery, fiscal challenges and heightened political risks," said Zuzana Brixiova, a Moody's Vice President -- Senior Analyst and the report's co-author. "Higher and more stable global growth will provide limited uplift to Africa's growth because commodity prices are still low and there are domestic structural bottlenecks.

"Risks stemming from government balance sheet pressures and liquidity stress as well as external imbalances remain elevated, while domestic political tensions increase policy uncertainty and impede reforms."

Moody's expects growth in Sub-Saharan Africa to accelerate to 3.5% in 2018 from an estimated 2.6% in 2017, supported by the strengthening global economy and a modest rise in commodity prices. However, the recovery remains fragile, uneven and sub-par and is barely above population growth. Falling productivity, reflecting relatively low investment and the challenging business environment, will also weigh on longer-term trends.

In 2018, most Moody's-rated sovereigns in the region are expected to stabilize their fiscal deficits, but at higher levels than were seen before the commodity price shock. The region is thus unlikely to see a decisive reversal in elevated debt levels given the countries' consolidation challenges, increased interest costs and subdued growth.

Debt accumulation is likely to slow in 2018 and beyond due to improved (but still relatively low) commodity prices and some fiscal consolidation, but a return to 2013 debt-to-GDP levels will be challenging at a time of modest growth in the region.

Currency risks will remain heightened in countries with large shares of foreign currency public debt. Reserve buffers will provide only limited mitigation. As Sub-Saharan African countries approach the peak of maturing international debt in the early 2020s, refinancing risks will continue to rise.

Government liquidity stress - a key driver of Moody's past rating actions in the region - remains heightened especially among commodity-dependent sovereigns. It continues to be driven by elevated fiscal deficits and challenging funding conditions, where greater reliance on domestic financing has increased borrowing costs.

Income levels have deteriorated in a number of countries in the region, increasing pressure on governments to extend subsidies, or constraining the government's ability to remove subsidies as intended.

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