Moody’s: SSA credit fundamentals stable

Moody’s Ratings recently announced an upgraded outlook for credit fundamentals for Sub-Saharan African sovereigns, shifting from negative to stable. Analysts at Moody’s expect the improved outlook to be sustained in the long run, primarily driven by easing financing conditions, reduced inflation, and interest rate cuts across the region. Mickaël Gondrand, Assistant Vice President and analyst at Moody’s, highlighted the positive factors contributing to this shift during an interview on CNBC Africa. Gondrand mentioned that the improved financing conditions, alongside fiscal consolidation efforts and enhanced growth dynamics, are key factors supporting debt reduction in the region. Despite the positive outlook, Gondrand warned of lingering social, political, and environmental risks that could potentially undermine the progress. He emphasized the importance of addressing challenges related to debt affordability, fiscal consolidation, and external risks to sustain the positive momentum. One of the major challenges identified by Moody’s is the need for better growth environments to support fiscal consolidation efforts. Gondrand highlighted ongoing reforms in various countries aimed at increasing tax revenue and containing spending to lower fiscal deficits. However, he cautioned that social and political pressures could pose obstacles to these efforts, particularly in countries facing high inflation rates and upcoming elections. Furthermore, environmental, social, and governance (ESG) risks were also discussed as critical factors that could impact the region's credit fundamentals. Gondrand emphasized the susceptibility of Sub-Saharan Africa to environmental risks, which can have adverse effects on economic and social stability. Addressing climate change and ensuring adequate job creation were highlighted as crucial steps to mitigate these risks and sustain economic growth. As the region faces large upcoming debt maturities in 2025, Moody's stressed the importance of refinancing debts and reducing risks associated with these maturities. Gondrand highlighted the significance of currency stability and maintaining access to global capital markets to manage external risks effectively. While the outlook remains stable, Moody's mentioned potential negative developments such as difficulties in accessing global capital markets or a resurgence in inflation, which could affect the region's credit outlook negatively. In conclusion, Moody's optimistic outlook for Sub-Saharan African sovereigns reflects a positive trend in credit fundamentals, driven by improving financing conditions and growth dynamics. However, the region must address lingering risks related to debt affordability, social and political pressures, and environmental challenges to sustain this momentum and achieve long-term stability.