Fitch believes SSA growth to continue despite lower commodity prices

The credit rating agency also does not expect US Federal Reserve ‘tapering’ to place significant pressure on SSA countries’ domestic and external financing capacity. Fitch expects SSA to continue to benefit from rising foreign direct investment (FDI), particularly in emergent oil and gas producers such as 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 improved access to credit, will support private sector consumption.hideThe prospect and threat posed by Fed tapering will top the agenda in 2014. But an improvement in credit fundamentals in the past decade should make most SSA countries resilient, said Fitch. However, countries such as 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 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 because of 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 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, because of the scale of FDI estimated at US$5bn 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 cooperation with the international community and highlighted Rwanda’s ability to adjust its budget, despite aid making up 40% of total revenue. In the past month, Fitch has announced ratings for four African countries, including Ghana, Mozambique, Namibia and Lesotho. Ghana: Ghana’s 2014 budget released on 19 November aims for a very limited fiscal correction following slower than anticipated consolidation this year. Fitch did not think it would effectively address the deterioration in government finances in the past two years that has ‘substantially eroded’ Ghana’s creditworthiness. The 2014 budget targets a deficit of 8.5% of GDP, following an upward revision of the 2013 deficit to 10.2% against a target of 9% at the time of the previous budget. The budget also pushes back the target deficit of 6% of GDP a year to 2016. Mozambique: Fitch affirmed Mozambique’s long-term foreign and local currency Issuer Default Ratings (IDRs) at ‘B+’ with a Stable Outlook. The rating agency also affirmed the Country Ceiling at ‘B+’ and Short-term IDR at ‘B’. This reflects the authority’s demonstration of a track record of prudent economic policy and reform, notably in the conduct of monetary policy, revenue collection and public financial management. This is reflected in above-peer growth, for the past 15 years. Fitch forecasted the economy will expand by 7% in 2013 and 8.3% in 2014, driven by strong growth in the mining sector and financial services as well as communication and transport. Namibia: Fitch affirmed Namibia’s long-term foreign and local currency Issuer Default Ratings (IDR) at ‘BBB-’ and ‘BBB’ respectively. The issue ratings on Namibia’s senior unsecured foreign and local currency bonds have also been affirmed at ‘BBB-’ and ‘BBB’, respectively. The Outlooks on the Long-term IDRs are Stable. Fitch also affirmed the Country Ceiling at ‘A-’, Short-term foreign currency IDR at ‘F3’ and National rating on the South African scale at ‘AA-(zaf)’. It said Namibia’s ‘BBB-’ IDR was supported by its low public debt (26% of GDP in 2013) and the sovereign net external creditor position. Real GDP growth has remained robust despite difficult external conditions in recent years. Continued public and private investment should support the diversification and resilience of the economy. Lesotho: Fitch affirmed Lesotho’s long-term foreign and local currency Issuer Default Ratings (IDR) at ‘BB-’ and ‘BB’, respectively. The Outlooks are Stable. The Country Ceiling has been affirmed at ‘A-’ and the Short-term foreign currency IDR at ‘B’. Lesotho’s ‘BB-’ rating is supported by its net external creditor positions (6.8% of GDP) and its government debt (36% of GDP), which is in line with rating peers. Good standards of governance and a low inflation environment have contributed to attract private and official capital and supported steady GDP growth. South Africa: Fitch published a criteria addendum outlining how it uses its Portfolio Credit Model (PCM) for asset-backed commercial paper conduits that are solely backed by South African corporate, structured finance or public sector assets and whose commercial paper is rated on a national scale.

Fitch believes SSA growth to continue despite lower commodity prices

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