The economies of most African countries are facing uncertainties as household incomes continue to drop in some.
A
new study by the global rating agency — Moody’s Investor Services —
shows the overall sovereign creditworthiness in sub-Saharan Africa in
2019 is negative, largely due to the credit challenges posed by fiscal
and external vulnerabilities.
This is also attributed to tightening global financing conditions and trade tensions between the US and China.
There
are fears that the growing trade conflict between the two major
economies will contribute to slower Chinese and global growth and push
down commodity prices.
The Moody’s report, released
last week paints a grim picture of African economies, noting that the
continent’s growth has slowed down from the high levels of the past
years.
"Our negative outlook for sovereigns in
sub-Saharan Africa is driven by persistent credit challenges related to
their ongoing fiscal and external vulnerabilities," said Daniela Re
Fraschini, the agency’s assistant vice president and author of the
report.
Income increase
The report
notes that incomes in most African countries will increase marginally in
2019, denoting limited progress in improving living standards and
reducing poverty.
“Social tensions arising from poverty
and/or high inequality could intensify, forcing governments to put on
hold fiscal consolidation plans and structural reforms such as energy
subsidy reforms,” reads the report.
In South Africa,
for instance, high levels of inequality have resulted in a review of
property ownership and land reform and, but with no clarity on the
outcome.
The report argues that while the continent’s
economic growth is expected to recover gradually, with real GDP growth
accelerating to 3.5 per cent in 2019 from an estimated 2.8 per cent in
2018, the tightening of global financing conditions and the trade
tensions between the US and China could slow down that projected growth.
Economic outlook
The
report cites six African economies with a negative economic outlook for
2019, largely due to their unpredictable policies, which have made the
investment climate unfavourable for doing business.
Tanzania
is the only East African economy on the list. The others are Democratic
Republic of Congo, Namibia, Mozambique, Cameroon and eSwatini.
The outlook for other East African economies — Kenya, Uganda and Rwanda — has been classified as stable but not positive.
“Tanzania’s
negative outlook reflects an increasingly unpredictable policy
environment weighing on the business climate, which could have a
negative long-term impact on the country's growth potential and ability
to attract foreign investment,” reads the report.
According
to Moody’s, Africa’s increased exposure to foreign debt has increased
the cost of debt servicing by governments, implying that most of their
tax revenues will be channelled towards repayment of debt rather than
infrastructure development in 2019.
This, according to
the report, would put undue pressure on local currencies, widening
current account deficits and driving inflation upwards.
“A
significant reliance on foreign currency commercial borrowing increases
refinancing risk and exposes sovereign debt trajectories to potential
depreciation pressures.
“A large share of foreign-currency debt increases vulnerability to currency pressures,” reads the report.
“The
share of foreign-currency debt across the continent remains high,
averaging around 57 per cent of total debt in 2018, and it expected to
increase over the next two years.
According to the
report, the interest rate on foreign-currency denominated commercial
debt in Africa is higher than the interest rate on borrowing from
official creditors, as reliance on concessional financing has declined
in many countries over the past decade.
Last year, Moody’s downgraded the sovereign ratings for Kenya, Zambia, Angola and Gabon.
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