Moody's: Coronavirus a major threat to Africa's sovereign credit ratings despite stimulus measures

The coronavirus global shock is having a severe macroeconomic and financial impact on African countries, according to a new report by Moody's Investor Services.

"Even with the country-specific fiscal and monetary stimulus measures announced by a number of African governments and central banks, the global shock will significantly constrain regional growth, says David Rogovic, a Moody's senior Analyst and co-author of a new report on the matter.

The report does not constitute a ratings action. 

Rogovic says that, while the number of coronavirus infections in Africa is considerably lower than elsewhere, it is increasing.

"To avoid a widespread pandemic that would overwhelm Africa's generally less-developed healthcare sectors and add to the fiscal cost through higher health spending, several governments have closed borders and instituted lockdowns to prevent the virus' spread," he notes.

Given the already-weak fiscal position of many African sovereigns, the report, therefore, foresees that the combined effect of border closures, global trade disruption, commodity price declines and financial market volatility linked to the coronavirus pandemic will weaken credit conditions for many African sovereigns.
 
Declining export revenue is expected to increase pressure on balance of payments and aggravate external vulnerability of countries.

At the same time, it expects financial market dislocation and investor aversion towards weaker debt issuers will exacerbate government liquidity risk.

In November last year, Moody's downgraded the outlook for its credit rating of the South African government from "stable" to "negative", the final step before it strips SA of its "investment grade" Baa3 long-term foreign-currency and local-currency issuer rating, which will leave it at "junk".

Even before the coronavirus pandemic started to make its presence felt in South Africa, a Bloomberg survey indicated that Finance Minister Tito Mboweni would be having the avoidence of a Moody's downgrade in mind in his Budget 2020 in February.

Out of 19 economists surveyed by Bloomberg at the time, 14 expected a Moody's downgrade to junk this year and 9 of those thought it would even happen in the first half of the year.

Earlier this week National Treasury said it cannot yet comment on Moody's rating decision, expected this week. Director General Dondo Mogajane said that for now, Treasury is still acting within its means in addressing the impact of the Covid-19 outbreak.

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