COVID-19 fallout to weigh heavily on SSA sovereigns in 2021

Sub-Saharan African sovereigns are expected to face significant economic challenges in 2021 as a result of the ongoing fallout from the COVID-19 pandemic. According to ratings agency Moody's, the region will continue to grapple with slow recovery and its implications for the credit outlook of various countries. Kelvin Dalrymple, Vice President & Senior Credit Officer at Moody's, highlighted the key factors contributing to this negative outlook during an interview with CNBC Africa. Dalrymple emphasized that the effects of the COVID-19 fallout have led to lower economic growth, higher government expenditure, lower revenues, wider deficits, and increased debt burdens for many countries in the region. He noted that Sub-Saharan Africa is currently experiencing a recession for the first time in about 30 years, with a projected rebound in 2021 followed by a more substantial recovery in 2022. The impact of the pandemic has been especially significant for commodity producers, oil producers, and oil importers. Initially, oil producers such as Nigeria and Ghana were heavily affected by the sharp decline in oil prices. Moreover, countries relying on other commodities like diamonds, gold, and copper are vulnerable to fluctuations in international demand for these resources. The tourism sector, another crucial economic driver for many African countries, has also been severely impacted by travel restrictions and the uncertain rollout of vaccines. Despite the challenges, Dalrymple highlighted that East African countries like Ethiopia, Tanzania, and Kenya showed relative resilience prior to the pandemic, with growth rates around 5% GDP per year. However, even these countries have experienced a significant slowdown in growth and are not expected to return to pre-pandemic levels until 2022. In contrast, Southern and Central Africa have faced greater economic struggles, with growth rates hovering around 2-3% before the pandemic. One of the pressing concerns for many African countries is the state-owned enterprises' financial health. Dalrymple underscored that these enterprises impose a significant burden on countries' expenditures, particularly in light of lower revenues and rising debt burdens. Countries like Ethiopia and Nigeria are particularly challenged in this regard, with the debt burden approaching 60% of GDP—the threshold at which rating agencies closely monitor a country's fiscal sustainability. In South Africa, entities like Eskom and South African Airways exemplify the challenges posed by struggling state-owned enterprises. Beyond South Africa, countries like Ethiopia also face risks due to the large percentage of state-owned enterprise debt relative to GDP. This poses a real threat to overall government finances and fiscal stability. Looking ahead, Dalrymple discussed the potential benefits of the African Continental Free Trade Area (AfCFTA), which was launched on January 1. The agreement aims to boost intra-African trade and reduce dependence on external markets. While the AfCFTA presents significant opportunities for economic growth, Dalrymple stressed the importance of addressing transportation infrastructure and non-tariff barriers to ensure the efficient movement of goods across borders. Furthermore, the looming costs associated with acquiring and distributing COVID-19 vaccines present an additional financial challenge for African countries. The rollout of vaccination programs will be crucial for reviving economic activity and restoring confidence in travel and trade. In conclusion, Sub-Saharan African sovereigns face a tough road ahead in 2021 as they navigate the lingering effects of the COVID-19 pandemic. The region's ability to address fiscal imbalances, support struggling industries, and embrace regional trade integration will be critical in driving a sustainable recovery.