The coronavirus pandemic and the oil price shock it triggered have had a severe impact on sovereigns in sub-Saharan Africa (SSA), which led to rating downgrades on seven of the 19 rated SSA sovereigns since the beginning of March 2020, Fitch Ratings says. Four sovereigns in the region have Negative Outlooks on their rating, which is unusually high, pointing to continued downside risks to ratings. Four sovereigns are rated 'CCC' or below (in such cases Fitch does not assign Outlooks) while only one (Cote d'Ivoire) carries a Positive Outlook.
Fitch forecasts the median real GDP for rated SSA sovereigns will contract by 2.1% in 2020, before returning to growth at 4% in 2021, which is barely above trend growth. The global shock has had a strong impact on the SSA region via commercial and financial linkages, and domestic containment measures - with many countries imposing lockdowns and curfews - have caused severe disruption to economic activity in many countries.
The shock has hit the main African oil exporters - Angola, the Republic of Congo, Gabon and Nigeria - particularly hard given their high reliance on oil revenue for fiscal and external financing and the indirect dependence of the non-oil sector on oil revenue. Countries with a concentration on tourism, particularly Cabo Verde and the Seychelles, have also been badly affected.
The fall in revenue, combined with additional spending from the healthcare sector will lead to a surge in deficits and debt levels in 2020; for a majority of countries debt will continue to rise in 2021. While global financial conditions have stabilised somewhat, access to commercial financing remains constrained on international markets and domestic debt markets are often shallow, raising the risk of liquidity challenges. The IMF has responded by expanding its rapid financing instruments, which 12 of the 19 sovereigns have accessed, and more countries are expected to agree regular IMF programmes that would open up other bilateral and multilateral funding.
The G20 has approved a Debt Service Suspension Initiative under which bilateral debt service payments due until end-2020 (potentially extended until 2021) can be paid later. Cameroon, the Republic of Congo and Ethiopia have signed an agreement while others, including Cote d'Ivoire and Nigeria, have requested participation. As Fitch's Issuer Default Ratings (IDRs) only refer to defaults on commercial debt, participation would not constitute a default. While a broader private-sector moratorium could qualify as a default, this does not seem sufficiently likely to affect ratings.
The full report "Sub-Saharan Africa Sovereign Credit Overview: 2Q20" is available on www.fitchratings.com.
