January 31, 2020/United Capital Report
The fiscal narratives across Sub Saharan Africa (SSA) region in 2019 was broadly similar, as fiscal deficit widened, owing to shortfalls in actual revenue generation amid rising expenditures. Thus, to cater for the rising recurrent spending and spur economic activities, public debt levels stayed elevated in 2019. More countries continued to tap into the international debt capital market without necessarily neglecting funds from traditional concessional sources. Notably, Benin was the “new kid on the block” as the West African country issued its debut sovereign Eurobond in H1-19 while the DRC received its first IMF lending since 2012, in H2-19.
In 2020, the borrowing spree is expected to pick as we anticipate a wider fiscal deficit – spurred by continued rise in overall expenditures during the period. Specifically, we expect the implementation of an upward review of national minimum wage to add further pressure on Nigeria and Ghana’s government financing needs. Also, we expect the currently low interest rates environment in the developed market to spur commercial borrowings by SSA countries. However, the increased magnitude of market-based borrowings has a higher risk content, as captured by greater vulnerability to commodity prices, global interest rates, and currency movements.
Accordingly, to make these external borrowings sustainable, we expect government to implement policies and reforms that could build resilience to these risks and use foreign capital to raise medium-term potential growth.
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