Page 18 - Noble Magazine • July-August 2020

FINANCE

Dealing with Economic Shocks

Coronavirus Crisis lasting negative economic and social
is
consequences.
evident
There
reduction in terms of growth forecasts
will leave Africa for the African sovereigns that we rate
in response to the coronavirus crisis
(see Exhibit 1). Botswana (A2 negative),
sovereigns with Namibia (Ba2 negative), South Africa
(Ba1 negative) and Mauritius (Baa1
negative) face the sharpest declines in
diminished capacity to real GDP growth because the impact
of domestic restrictions on economic
activity and the impact of a fall in global
absorb future shocks demand on key sectors such as tourism
and mining. Senegal (Ba3 RUR-),
Mozambique, Ethiopia (B2 RUR-),
and Uganda (B2 stable) will also see
slowdowns, but will still experience
he coronavirus outbreak and weak fiscal metrics and lower the growth given their more limited
its wider impact on global resources available to repay debt. exposure to sectors more vulnerable to
trade, commodity prices and falls in global demand.
Tfinancial markets present Immediate credit risks are elevated
severe economic, financial and social for those facing financing and external For almost all African sovereigns,
challenges to many African sovereigns. stress. Although international support the border closures and broader
Many governments have limited like the G-20 Debt Service Suspension lockdown measures have significantly
financial and institutional capacity to Initiative (DSSI) will provide modest slowed small-scale trade across
absorb the current shock. The longer- liquidity relief for a number of countries, Africa, which is a crucial source of
lasting negative effects on the region’s those sovereigns with large borrowing income and employment on the
credit profiles will leave them with requirements or weak revenue bases continent. With 86% of the population
diminished capacity to absorb future like Mozambique (Caa2 stable), employed informally, the scope for
shocks. Zambia (Ca stable) and Ghana (B3 government intervention to protect
negative) face the most severe liquidity jobs1 and incomes is limited. The fall
The outbreak will trigger a recession stress. At the same time, the falls in in commodity prices and international
in Africa that will have long-lasting foreign-exchange reserves, foreign demand is exacerbating the impact
negative economic and social direct investment and remittances for oil producers like Angola, Nigeria,
consequences. The deep disruptions have elevated external risks for those Gabon, and the Republic of the Congo
to global supply, cuts in demand and countries with low reserves like Ghana, and copper exporters like Zambia
falls in commodity prices triggered by Tunisia (B2RUR-), and Zambia. and the Democratic Republic of the
the outbreak will lead to a slump in Congo (Caa1 stable). Similarly, weak
growth. While growth will resume later Long-lasting consequences of global growth is weakening demand
this year in concert with the rest of the the coronavirus shock threaten for diamonds, with production cuts to
world, the recovery will be slow and governments’ capacity to reverse the support prices resulting in a significant
there is a risk of longer-term scarring increase in debt burdens. Assuming slowdown in Botswana’s diamond
from the crisis. that growth returns and that this sector. A decline in international
year’s wider deficits can be reined demand will also weigh on Namibia’s
Pressures on already weak fiscal in subsequent years, most African mining-dependent economy.
positions will intensify. The fall in governments’ debt burdens will stabilise
revenue from the economic slowdown, after a material rise this year. However, By contrast, the impact on soft
spending on measures to support the few governments have a track record commodities like cocoa is likely to be
economy, and a rise in healthcare of reversing debt increases. If fiscal limited, which will insulate economies
spending will widen fiscal deficits strength is not restored, sovereigns will like Ghana and Côte d’Ivoire (Ba3
sharply and increase borrowing be left with heightened vulnerability to RUR). Meanwhile, export of gold,
requirements. Oil-exporting economies a shift in private creditors’ sentiment of which Ghana, South Africa, and
like Angola (B3 RUR-), Nigeria (B2 and weaker capacity to absorb future Tanzania (B1 negative) are the
negative), Gabon (Caa1 positive) and shocks. primary exporters, attract prices that
Republic of the Congo (Caa2 stable) are typically inversely correlated to
have already seen a fall in revenue that The outbreak will trigger a recession procyclical commodities like copper.
will further aggravate their already in Africa that could have long-

18 Noble Magazine // July - August 2020