Sovereign Debt Growth, Debt-Servicing Costs Continue to Rise in Sub-Saharan Africa

Low commodities prices for exporters and an ongoing reliance by some sovereigns in sub-Saharan Africa on infrastructure investment to drive GDP growth have and will continue to increase sovereign debt levels and debt servicing costs this year and next.

“SSA remains one of the fastest growing regions in the world,” said Jan Friederich, senior director of sovereigns at Fitch (Hong Kong) Limited in a new report. “However, while debt-funded infrastructure investment will help remove constraints on long-term growth, its benefits may not fully materialize until governance and business environments improve. As such, its near-term impact on sovereign debt ratios will be negative.”

Fitch-rated sub-Saharan African sovereigns’ general government debt/GDP ratio grew to 49.7% in 2015 from 30.2% in 2011, while the rating agency’s country-by-country fiscal projections anticipate the median ratio will continue increasing to 51.4% this year and 53.3% in 2017. Mozambique has the largest debt/GDP ratio at 60% from 2012 to 2017, while Nigeria has the smallest at 3.7%. Most sub-Saharan African sovereigns started from fairly low levels of debt after restructurings and debt forgiveness in 2000.

“As well as rising debt, potential Fed tightening, dollar appreciation and volatile capital flows may lead to tighter financing conditions,” Friederich said. “Some capex budgets have been cut, but without revisions to overall expenditure frameworks for 2016 and 2017, debt ratios are unlikely to fall.”

A third of sub-Saharan African 18 countries are on Fitch’s negative outlook and there are not positive outlooks. Repeated fiscal deficits and escalating external deficits are factors that could result in negative rating actions, particularly in countries that already have high debt levels and moderate liquidity buffers, Fitch analysts noted.

- Nicholas Stern, editorial associate

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