Diversification key to sub-Saharan Africa ratings – Moody’s

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Diversification key to sub-Saharan Africa ratings – Moody’s

3:22 CAT | 24 May 2016

Financial ratings agency Moody’s said yesterday that economic diversification will be one of the most important factors in ensuring economic growth in sub-Saharan Africa and preventing further deterioration in the quality of sovereign credit.

“The slowdown in growth, despite efforts to diversify economies in the past decade, brings to light the region’s vulnerability to shocks in commodity prices, and the level of economic diversification is emerging as the most important distinguishing factor,” write the analysts at Moody’s, in a special report on sub-Saharan Africa.

“Raw materials exporters are facing a third year of slower growth in 2016,” Moody’s reports, noting that, in the region’s largest oil producers Angola and Nigeria, “the initial decline following the oil shock has now spread to the other sectors of the economy, such as construction and services”.

The quality of sub-Saharan countries’ sovereign debt is facing a bleak short-term scenario. “The growth prospects shortened up and government budgets are under pressure, as lower prices of oil and other raw materials constrain the dominant source of revenue in the region,” analyst Rita Babihuga writes.

Falls in ratings since the beginning of the year “reflects these challenges”, Moody’s adds, noting that “the prospects of negative developments in several sovereign credits show the risk of further deterioration in credit quality in the next 12 to 18 months”.

Moody’s analyzes 17 countries in sub-Saharan Africa, including Portuguese-speaking Angola and Mozambique. Of these, only Senegal has a positive outlook; all the others are either stable or negative.

Angola has negative developments prospects, having already seen the assessment of its credit quality downgraded this year, while Mozambique’s rating is under review following the disclosure of hidden loans and increase in annual debt service payments.

Both Angola and Mozambique are rated below investment level, a category traditionally known as ‘junk’.

Source: Lusa