Positive Outlook For Ssa In 2014 … But Ghana to face challenges



seth terkperFitch Ratings says in its 2014 Outlook report for Sub-Saharan African (SSA) sovereigns that growth will pick up in 2014, helped by recovery in Europe.

The report however, stated that financial market turbulence linked to Fed tapering could pose challenges for sovereigns with twin deficits and high foreign participation in local markets.

“Overall, the region’s rating outlook is stable,” the report released by the rating agency said.

Fitch said it expects Gross Domestic Product (GDP) growth to pick up slightly in 2014, to average 5.1 per cent.

“Moreover, median growth outside South Africa, the largest but also the slowest growing economy in the region, will rise to 6.3 per cent,” it said.

“Faster global growth, particularly in Europe, and continued strong Foreign Direct Investment will help. However, Africa’s growth story is not mainly externally or commodity driven. More fundamental is the benefit of enduring macro stability, which is raising business and consumer confidence, together with increased public infrastructure spending, funded in an increasing number of cases by non-concessional finance, notably Eurobonds,” it said.

The report said: “The prospect of Fed tapering caused a hiatus in Eurobond issuance from May but Nigeria re-opened the market in July with its second issue and Ghana followed shortly afterwards, although its weakened fundamentals meant it paid a higher yield.”

It said with liquidity likely to be less abundant in 2014, countries with weaker fundamentals, especially twin deficits, and with heavy foreign investor participation in local markets, were likely to face more challenges than countries with smaller financing needs.

“South Africa, Ghana and Kenya all fall into the former category. South Africa has experience of dealing with volatile portfolio flows and has a tried and tested policy regime with a floating exchange rate, inflation targeting as well as deep local markets with sophisticated domestic financial institutions. Volatility of portfolio flows will present bigger challenges for the rest of the region,” it said.

It said Fitch considers the overall rating outlook for SSA as stable, despite a much higher balance of positive over negative outlooks compared with a year ago.

“Of the 16 ratings in the region (we assigned ratings to the Republic of Congo in October), 69 per cent of outlooks are stable (up from 60 per cent a year ago), 25 per cent Positive (20 per cent a year ago) and only 6 per cent negative (20 per cent last year),” it said.

Three countries were moved to positive outlook in 2013 Rwanda, Seychelles and Uganda compared with just one move to negative Cape Verde. However, downgrades of Ghana, South Africa and Zambia outweighed the one upgrade of Mozambique.

Since all the rating changes were to stable outlooks, this also helped increase the balance of positive over negative outlooks.

The history of rating improvement in SSA has been slow. In over a decade of ratings in the region, none aside South Africa has moved up by more than a notch. This is partly a reflection of the heavy weight of structural weaknesses in the average SSA credit – per capita income, governance and financial development  which are difficult to change quickly. Positive outlooks are therefore unlikely to be converted to upgrades quickly.

The three downgrades in 2013 are still tending to weaken, even though Fitch judges current trends to be consistent with stable outlooks. Deterioration is most evident in Ghana, with double digit twin deficits and a gradual fiscal consolidation likely to disappoint, despite high and rising debt.

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