Moody's: Higher debt, lower growth to plague sub-Saharan Africa in 2021

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Moody's head office in New York. Photo: Getty Images
Moody's head office in New York. Photo: Getty Images
  • Moody's sees sub-Saharan African sovereigns battling higher debt levels, weaker debt affordability and lower growth and revenues in the wake of Covid-19.
  • The ratings agency says South Africa's debt funding costs have returned to pre-pandemic levels, and this trend is expected to continue into 2021.
  • The region's long-term economic recovery in the region has been described as "precarious" given the limited fiscal space sovereigns have to counter the negative impacts of the pandemic.


Sub-Saharan African sovereigns will be battling lower growth and revenue as well as higher debt levels and weaker debt affordability into 2021, according to Moody's.

The ratings agency on Wednesday issued a 2021 outlook report. It noted that the region will be challenged by the aftermath of Covid-19 on growth and revenue. Moody's noted that in 2020 negative ratings actions in the region exceeded prior years.

"Our outlook for Sub-Saharan African (SSA) creditworthiness in 2021 is negative … We expect SSA sovereigns to face severe challenges in grappling with the fallout from the coronavirus shock as lower overall economic growth and revenue coupled with higher government expenditure will lead to wider fiscal deficits and higher debt," the report read.

While growth in the region was le affected than other regions in the world in 2020, Moody's warned the impact of the economic contraction – the first in three decades – will be greater. The region's long-term economic recovery has also been described as "precarious" as most SSA sovereigns have limited fiscal space to counter the negative impacts of the pandemic.

Moody's noted South Africa and eSwatini will not recover to their 2019 real GDP levels until 2023. "GDP growth of 4.5% in South Africa will support small economies that have strong ties to the country such as eSwatini, which we forecast will grow by 1.4%," Moody's noted. The World Bank forecasts the SA economy to grow by 3.3% in 2021.

The region will experience rising debt burdens, including higher debt servicing costs. "Persistent fiscal deficits amid the challenging growth outlook will keep debt burdens elevated for SSA sovereigns well into the medium term," the report read. 

"The average debt burden in the region will hover around 64% of GDP in the near to medium term compared to the 47% average in 2015-19. We do not expect debt burdens to come down in the foreseeable future as revenue generation capacity remains weak."

However, the ratings agency noted funding costs have come down given the policy actions of central banks around the world, but for most countries in SSA they are still higher than before the pandemic.

South Africa, Côte d'Ivoire and Senegal have seen their funding costs revert to pre-pandemic levels.

"We expect this pattern to continue in 2021, with an uneven regional economic recovery being the main driver of funding differentiation," Moody's said.

Moody's noted that contingent liabilities from state-owned enterprises, particularly affected by the crisis like national airlines or oil companies, would pose risks to sovereigns' debt burdens.

"We estimate the debt of SSA SOEs at 10.7% of GDP, in line with the global average. Disclosed levels are highest in Ethiopia, South Africa and the Republic of the Congo," the report read.

The report also suggested SSAs will increase their reliance on concessional finance sources from the World Bank and other multilateral development banks and the IMF in 2021.

South Africa was among the 19 SSA sovereigns which accessed a rapid financing instrument. The $4.3 billion loan was granted last year.

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