Fiscal and growth momentum in South Africa and Nigeria will likely translate to a neutral outlook for Sub Saharan African sovereigns, said Fitch Ratings yesterday.
African sovereigns have faced debt vulnerabilities, constrained growth and fiscal slippages in the past few years, with long term debt instruments minimal and sovereign risk premiums worsening the situation.
Paul Gamble, the head of Middle East and Africa sovereigns at Fitch Ratings now expects the outlook for regional sovereigns to be neutral. This will likely be led by robust momentum in South Africa and Nigeria.
“We forecast growth will improve driven by reforms and recovery from drought. Momentum in Nigeria and South Africa the two largest SSA economies, will generate positive spillovers,” said Gamble.
The neutral outlook projected for Sub-Saharan Africa sovereigns by Fitch in 2025 reflects “a stronger macroeconomic outlook and modest fiscal consolidation balanced against still-challenging financing conditions and political and insecurity” risks.
“Tighter policy should help tame inflation. Improved growth and fiscal reforms should reduce regional government debt/GDP, while lower policy rates will ease domestic financing costs,” explained Gamble.
Nonetheless, Fitch expects that median average financing costs for the region will rise further, with interest and revenues likely to be “uncomfortably high for many countries” in the region.
This means that some sovereigns within Sub Saharan Africa will face persistent financing challenges, particularly for those at the lower end of the rating scale.
Against this backdrop, Fitch Ratings has forecast median economic growth in the Sub Saharan Africa region to rise in 2025 to 4.6%, from 3.9% in 2024. This is compared to a 10-year average of 3.6%.
“The improvement will be underpinned by reform implementation and a rebound from drought. Stronger growth in South Africa and a modest improvement in Nigeria, backed by greater macroeconomic stability, will have positive spill overs to neighbouring economics,” said Gamble.
The improved growth outlook for the region and the expected fiscal reforms should alongside lower policy rates should be able to ease domestic financing costs.
Falling interest rates will also be expected to feed into lower local-currency funding rates while further US Federal Reserve rate cuts are expected to provide further impetus.
Fitch has projected a 100 basis points cut in 2025. However, average funding costs continue to rise with interest payments relative to revenues and GDP both projected to hit long-term highs in 2025.
“We forecast interest/revenues will be above 30% in Angola, Kenya, and Nigeria; significant funding pressures remain. Externally, markets are not open to many of the lower-rated Sub Saharan Africa borrowers,” notes Fitch Ratings.
Despite this, concessional financing remains strong in key markets, such as Kenya and Tanzania, helping to alleviate external liquidity pressures.
With multilateral donors appearing attuned to the risks of social constraints to policy adjustment and showing some leeway in accessing programme compliance, there was a risky prospect that US President-elect Donald Trump’s administration will lower funding for international financial institutions.
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