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Rising debt distresses region as countries risk lower ratings, report

Nyabugogo taxis Park during the lockdown ,all businesses were closed there.Normally , this is one of the busiest commercial site for vehicular traffic in Kigali but due to the lockdown ,no movement . / Dan Nsengiyumva

Sub-Saharan Africa government’s debt burden is rising at a fast pace and to levels higher than other emerging markets, heightening the risk of downgrades and defaults, the latest Fitch Ratings report has warned.

According to the report, a number of countries in the region are now in danger of slipping into a major debt crisis. Eight countries are already in debt distress, while a further 18 are at high risk of distress.


However, a total of seven sovereigns in the region, including Nigeria and Uganda, have a negative outlook rating: The others are Cameroon, Ethiopia, Namibia, Kenya, and South Africa.


Owing to the pandemic restrictions that have slowed down economies, the report forecasts median real GDP to fall by 2.1 per cent in 2020 and the budget deficit to widen to 7.4 per cent in 2020, from 4.9 per cent in 2019.


“Fitch forecasts the median budget deficit to widen to 7.4 per cent in 2020, a record high in the modern era, from 4.9 per cent in 2019. The combination of lower GDP and wider budget deficits will trigger a jump in the median government debt ratio by 14 per centage points to 71 per cent of GDP at the end of 2020,” the report said.

Many sub-Saharan countries’ generally weak credit fundamentals (beyond high public debt) reduce their debt tolerance and resilience and leave them disproportionately vulnerable to the global coronavirus shock, the report adds.

Emerging markets have been battered by the measures taken to contain the coronavirus pandemic, in various ways including, the fall in tourism numbers, remittances and global trade, disruption to economic activity, pressure on exchange rates, rise in risk premiums, and diminished market access.

However, according to Fitch, widening primary budget deficits have been the largest contributor to rising government debt/GDP.

As a result, the agency forecasts the median government debt/GDP ratio for the 19 Fitch-rated Sub Saharan Africa sovereigns to reach 71per cent at end-2020, from 57per cent at the end-2019 and 26per cent in 2012.

Risk of instability

Unsustainable debt, the report highlights, presents significant risks to global commitments to end extreme poverty.

It said that a poorly managed debt crisis would set back progress towards the Sustainable Development Goals, as well as reverse the development progress made over the past decade, after debt relief programs freed up resources for development in 30 African countries.

Emergency relief

IMF emergency support worth $8 billion to 13 Fitch-rated sub-Saharan African countries in addition to the G20 Debt Service Suspension Initiative (DSSI), which covers bilateral debt service in 2020 and is open to 15 nations (although not all will participate), provide useful fiscal and external financing.

However, these provisions are equivalent to 0.9 per cent and 1.2 per cent of GDP, respectively.

In addition, DSSI relief and the new IMF loans are not designed to address debt stocks and medium-term risks to debt sustainability.

Risk of a lower rating downgrade

According to the rating agency, a number of countries risk rating downgrade as they continue to take up new loans to tackle the Covid-19 pandemic.

In the same report, Fitch said that Rwanda, which has amassed $223.6 million new loans is rated as stable.

“The coronavirus shock compounds a marked deterioration in public finances in sub-Saharan Africa, which will be challenging to reverse,” the report said.

Since the beginning of March this year, the rating agency has downgraded at least seven countries, a reflection of both the severity of the pandemic and the limited margin of resilience after the rapid rise in debt and other credit weaknesses.

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