Nigeria and other countries in Africa’s debt burdens are rising at a faster pace and to a higher level than for other emerging markets (EM), heightening the risk of further downgrades and defaults, Fitch Ratings warned yesterday.
The agency in a statement posted on its website yesterday, forecasted the median government debt/GDP ratio for its 19 rated African countries to reach 71 per cent at the end of 2020, from 57 per cent at the end of 2019 and 26 per cent in 2012.
It explained that the coronavirus and oil price shock was having a severe impact on countries in the region.
Owing to this, Fitch forecasted that the median real GDP would fall by 2.1 per cent in 2020 and the budget deficit would widen to 7.4 per cent in 2020, up from 4.9 per cent in 2019.
“This combination, amplified by currency depreciation in many cases, will cause a 14 percentage point jump in the median debt ratio this year.
“The coronavirus shock compounds a marked secular deterioration in Sub-saharan Africa’s (SSA) public debt and interest burdens that has been running for a decade and that will be challenging to reverse.
“Mozambique and the Republic of Congo have defaulted since 2016, and Fitch believes further sovereign defaults are probable,” it added.
According to the report, widening primary budget deficits have been the largest contributor to rising government debt/Gross Domestic Product.
Debt will continue to rise without substantial fiscal consolidation, it added.
Moreover, it pointed out that GDP growth rate in the continent has declined since 2014, reflecting the drop in commodity prices and a lacklustre rate of return on investment.
“The average real interest rate on debt has also risen since 2017, partly reflecting a decline in the share of total external borrowing that is on concessional terms, as countries stepped up borrowing from the Eurobond market.
“New International Monetary Fund emergency support worth $8 billion to 13 Fitch-rated SSA sovereigns and the G20 Debt Service Suspension Initiative (DSSI), which covers bilateral debt service in 2020 and is open to 15 of them (although not all will participate), provide useful fiscal and external financing. “Fitch has downgraded seven of the 19 rated SSA sovereigns since the beginning of March 2020, reflecting both the severity of the coronavirus shock and the limited margin of resilience after the rapid rise in debt and given other credit weaknesses. The average SSA rating has now declined by 1.5 notches since mid-2013 to ‘B,” it added.