As Debt-to-GDP ratio rises to 71% in 2020
Peter Egwuatu & Elizabeth Adegbesan
Fitch, world’s leading risk rating agency, has hinted that the median of government debt-to-gross Domestic Product, GDP, ratio for Nigeria and 18 other Sub-Sahara African Countries it rated in the region would rise to 71% by end-2020 from 26% in 2012, while the median debt ratio across other emerging markets is expected to climb to 57%.
Its report stated that public debt burdens rising to high levels in Sub-Saharan Africa (SSA) at a faster pace is heightening the risk of further rating downgrades and defaults.
Fitch had downgraded Nigeria’s Long Term Foreign Currency Issuer Default Rating (IDR) to ‘B’ from ‘B+’ in April 2020 with outlook at ‘Negative’.
The downgrade and Negative Outlook reflect the aggravation of ongoing pressures on Nigeria’s external finances following the recent slump in oil prices and the pandemic shock.
The latest report released yesterday stated: “The coronavirus and oil price shocks are having a severe impact on SSA. Fitch Ratings forecasts, the median government debt/GDP ratio for the 19 Fitch-rated SSA sovereigns to reach 71% at end-2020, from 57% at end-2019 and 26% in 2012.”
Fitch forecasts median real GDP to fall by 2.1% in 2020 and the budget deficit to widen to 7.4% in 2020, from 4.9% in 2019.
According to the report: “This combination, amplified by currency depreciation in many cases, will cause a 14 percentage points jump in the median debt ratio this year. The coronavirus shock compounds a marked deterioration in SSA public finances that has been running for a decade and which will be challenging to reverse.
“Widening primary budget deficits have been the largest contributor to rising government debt/GDP. Debt will continue to rise without substantial fiscal consolidation.”
“The region’s main oil exporters – Angola, the Republic of Congo, Gabon and Nigeria – have been hit particularly hard given their high reliance on oil revenues for fiscal and external financing, and the dependence of the rest of their economies on crude earnings.”