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Macroeconomic conditions are expected to be broadly stable in sub-Saharan Africa in 2024 but risks pertaining to financing challenges will persist, according to the latest study by an American credit rating agency, FitchRatings.
The rating Agency says that constraints on international bond market access and foreign-exchange liquidity will remain particular pressure points.
Sovereign debt distress will continue to be a major risk to African banks’ credit profiles. Lower-rated sovereigns will be particularly at risk should financing conditions not improve marginally as anticipated.
Weaker Growth and Persistent Fiscal Pressures
The deceleration in global growth, led by the US and China, combined with persistent fiscal pressures are key negative factors affecting the global sovereign’s outlook. Balanced against those trends are expected reductions in policy rates and continued disinflation.
Of eight regional sovereign outlooks, six are neutral, reflecting a balance of trends affecting the sovereign credit environment, and two, for North America and Middle East and North Africa, are deteriorating.
Growing Spending, Debt and Interest Service Burdens
Sovereigns in most regions enter 2024 with higher general government debt than pre-pandemic and rising interest burdens. Expansionary fiscal policies, in part resulting from the growth in Covidrelated expenditures, have added to more challenging fiscal dynamics. This will limit fiscal flexibility in the event of a more severe economic downturn or other event risks.
Further Sovereign Defaults Likely
As in 2023, lower-rated sovereigns will be particularly at risk in this global macroeconomic environment, with 18% of emerging markets rated at ‘CCC+’ or below. Tight external financing markets will remain a key risk for emerging and frontier markets, with total financing needs of around USD1 trillion in 2024 remaining about the same as in 2023.
North America Sovereign Outlook Deteriorating
A sharp US economic slowdown, albeit without a full recession, including higher unemployment, a high federal deficit and rising debt, underpins a deteriorating outlook for North America. Fitch’s base case includes continued disinflation and the beginning of monetary policy loosening at midyear. However, with core inflation set to remain above the Fed’s target, significant rate cuts by end2024 are unlikely.
Politics and Geopolitics Remain Key Watch Items The geopolitical risk environment remains elevated with the Russia-Ukraine and Israel-Hamas conflicts showing little sign of resolution.