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Dec 2 (Reuters) - (The following statement was released by the rating agency)
In its Sub-Saharan Africa (SSA) Credit Overview, Fitch Ratings says that it expects average GDP growth for the 16 countries rated by the agency to rise above 5% in 2014, despite more subdued emerging market growth and less favourable commodity prices. The agency also does not expect Fed tapering to place significant pressure on SSA countries’ domestic and external financing capacity.
Fitch expects SSA to continue benefiting from rising foreign direct investment (FDI), particularly in emergent oil and gas producers like Mozambique, Kenya and Uganda. Public infrastructure spending will trend upwards, as governments gain access to new sources of funding and on improved implementation capacity. Rising public sector wages in a number of countries, combined with improving access to credit, will support private sector consumption.
The prospect and threat posed by Fed tapering will top the agenda in 2014. An improvement in credit fundamentals over the past decade should make most SSA countries resilient. However, countries like South Africa and Ghana, which run large current account and budget deficits and have become increasingly dependent on foreign inflows to fund both the budget and the current account will be most at risk.
Two divergent credit themes have gained traction across SSA since May 2013. The sharp deterioration in government finances and weak commitment to fiscal consolidation prompted downgrades in both Ghana (B/Stable) and Zambia (B/Stable). In Ghana during 2013 the authorities continued to overrun on wages, interest costs and arrears, leading Fitch to forecast that the government would fail to meet the 9% of GDP fiscal deficit target; this was subsequently confirmed by the government. Zambia’s budget deficit jumped to an estimated 8.5% of GDP from a budgeted 4.5%, largely due to overspending on subsidies. A 38% increase in the wage bill will see the deficit remain elevated at 6.6% of GDP in 2013. Fitch forecasts that spending will overrun again in 2014, reflecting the cost of the wage increase and higher debt service costs.
In contrast, a steady track record of prudent macroeconomic policies built up over more than a decade, strong growth prospects and commitment to reforms and infrastructure investment, were among the factors that contributed towards the upgrade of Mozambique (B+/Stable) as well as Positive Outlooks on Uganda and Rwanda, both rated ‘B’.
Fitch expects the development of the coal and natural gas sectors to support growth of 7%-8.5% in 2013-2015 in Mozambique, due to the scale of FDI estimated at USD5bn annually. However, Fitch acknowledges the risk posed by potential delays in infrastructure investment, falling prices and political violence. In Uganda, a renewed commitment to address weak revenue growth through tax reforms - revenue as a percentage of GDP has remained little changed at 13% of GDP for much of the past decade - also contributed towards the upgrade. Aid has resumed following the 2012 “donor crisis” in Rwanda, which proved only temporary against a background of continued co-operation with the international community and highlighted Rwanda’s ability to adjust its budget, despite aid making up 40% of total revenue.
The full Sub-Saharan Africa Credit Overview provides a summary of the credit profile of each of the 16 rated sovereigns in SSA, including key rating drivers, together with an overview of recent developments regional trends and key forecasts. It is available at www.fitchratings.com or by clicking on the link below.
Link to Fitch Ratings’ Report: SSA Sovereign Credit Overview