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Africa: Real GDP to grow by 3.4% in 2021, outlook subject to elevated uncertainties
LAGOS (Capital Markets in Africa) – The African Development Bank Group (AfDB) projected Africa’s real GDP to grow by 3.4% in 2021, after contracting by 2.1% in2020 due to the fallout from the coronavirus pandemic. It attributed the region’s economic recovery to the easing of pandemic related restrictions, the anticipated resumption of tourism activity, and the increase in commodity prices. It noted that the economic impact of the pandemic varies across economic groupings and sub-regions, but anticipated the rebound in activity to be broad based. As such, it forecast real GDP to expand by 6.2% in 2021 in tourism-dependent economies, by 3.1% in oil-exporting countries and in other-resource-intensive economies, and by 4.1% in non-resource-intensive countries. Also, it expected economic activity in North Africa to grow by 4% this year, followed by Central and Southern Africa (+3.2% each), East Africa (+3%), and West Africa (+2.8%). It pointed out that risks to outlook are tilted to the upside and include the effective deployment of coronavirus vaccines, sustained fiscal stimulus, and continued efforts to accelerate digitalization. However, it noted that the outlook is subject to high uncertainties and downside risks such as new waves of coronavirus infections, elevated debt levels, a slower-than-anticipated recovery in tourism and remittance flows, lower-than-expected commodity prices, financial market volatility, as well as extreme weather events and a rise in domestic conflicts.
Moreover, it estimated the region’s fiscal deficit to have doubled to a record high of 8.4% of GDP in 2020, which led to an increase in public debt. It expected African authorities to start a gradual fiscal consolidation in 2021. Still, it projected the region’s debt-to-GDP ratio to grow by 10 to 15 percentage points by the end of 2021, after it stabilized around 60% in the 2017-19 period. It cautioned that the rising share of commercial debt in Africa and the high share of African debt denominated in foreign currency are weighing on debt sustainability. In parallel, it forecast the region’s current account deficit to narrow from 5.5% of GDP in 2020 to 4.1% of GDP in 2021, mainly due to the rebound in the exports of key commodities and to lower demand for imports.
Ethiopia: Ratings placed on review for possible downgrade
Moody’s Investors Service placed Ethiopia’s ‘B2’ long-term issuer and senior unsecured ratings on review for possible downgrade. It affirmed the long-term local currency and foreign currency ceilings at ‘Ba3’ and ‘B2’, respectively. It attributed its decision to place the ratings on review for downgrade to the increased risks that private creditors could incur losses, following the government’s decision to sign a Memorandum of Understanding (MoU) that requires it to engage with private creditors under the Group of 20 (G20) Common Framework for debt relief. However, it said that the risk level to private creditors is still unclear, as the decision for a comparable treatment of official and private sector lenders will ultimately rest with official creditors. As such, it noted that the G20 creditor committee, rather than the Ethiopian government, will determine the size of the necessary debt relief and its allocation across various creditor classes. Further, it indicated that the International Monetary Fund highlighted downside risks to Ethiopia’s fiscal and external position, as it noted that government revenues are equivalent to 12% of GDP and foreign currency reserves cover less than three months of imports. However, the agency considered that receipts from asset sales through the partial privatization of Ethio Telecom and the auctioning of spectrum licenses could increase foreign currency reserves and ease the pressure on the exchange rate. But it said that the timetable for these proceeds is uncertain. In addition, it noted that domestic political risks remain elevated, with heightened tensions in the northern region of the country, which could have implications on funding from the donor community.
Ghana: Fiscal deficit at 9.5% of GDP in 2021
Barclays Capital indicated that the Ghanaian government’s budget for 2021 is targeting a fiscal deficit of 9.5% of GDP, and expected it to narrow by about two percentage points (ppts) annually over the medium term and to reach 4.5% of GDP in 2024. It indicated that the authorities’ fiscal consolidation efforts include containing public spending and widening the country’s tax base. It said that authorities are projecting public spending at an elevated 26% of GDP this year due to coronavirus-related expenditures. However, it did not expect the authorities’ efforts at fiscal consolidation to be sustainable without first addressing the public sector wage bill, which it anticipated to rise by 10% annually in the 2021-23 period. It noted that debt servicing reached 6.4% of GDP in 2020 due to additional borrowing for pandemic-related spending, and expected it at 7.8% of GDP in 2021. In parallel, Barclays projected public revenues at 16.5% of GDP in 2021 relative to the authorities’ forecast of 16.7% of GDP, supported by newly-introduced fees and an increase in the value-added tax rate. As such, it projected the fiscal deficit at 9.3% of GDP this year, in case of higher donor support and favorable financing conditions, and at 7.2% of GDP in 2022 if authorities step up efforts to address tax evasion. It anticipated the government to finance the fiscal deficit through a combination of domestic and international funding. Further, it forecast the public debt level to peak at 84.5% of GDP at the end of 2021, and expected it to reach 77% of GDP at end2024 in case of narrower fiscal deficits.
Angola: Household spending to recover in 2021
Fitch Solutions projected economic activity in Angola to grow by 1.7% in 2021 relative to a contraction of 4.4% in 2020 that was due to the impact of the COVID-19 pandemic on the economy. It expected the economic recovery to help reduce the unemployment rate from an estimated 8.6% of the labor force in 2020 to 7.5% in 2021. It anticipated the decline in the unemployment rate to support household income. It forecast household spending to grow by a real rate of 1.8% in 2021 relative to a contraction of 3.4% in 2020. It said that major consumer spending categories, such as food & drinks, clothing & footwear, and restaurants & hotels, posted double-digit growth rates in 2020, due to a rise in the inflation rate to an average of 22.2% in 2020. But it forecast the inflation rate to decrease to an average of 18% in 2021, which will provide some relief to consumers and support demand. It projected spending on alcoholic drinks and tobacco to increase by a nominal 26% in 2021, followed by spending on furniture (+24.4%), recreation and clothing & footwear (+24.2% each), restaurants & hotels (+23.4%), and food & non-alcoholic drinks (+15.5%). It said that the risk of tighter COVID-19 restrictions will persist until the majority of Angola’s population is vaccinated. It anticipated that Angola will trail most countries worldwide in providing vaccines to its wider population and added that authorities aim to vaccinate 20% of the population by the end of July 2021. It considered that renewed lockdowns, delays in the vaccine’s rollout, and the easing of government support represent risks to the economic outlook in 2021.
Mauritania: NPLs ratio at 26% in September 2020, capital adequacy ratio at 21%
The International Monetary Fund indicated that the Banque Centrale de Mauritania (BCM) supported the country’s financial system by encouraging banks to suspend dividend payments, reassess their credit portfolio, and monitor the impact of the pandemic on credit quality. It noted that banks are well capitalized, but that the sector’s risk-weighted capital adequacy ratio stood at 20.7% in September 2020, down from 25.3% at the end of 2019. It added that growth in private sector lending decelerated from 12.8% in 2019 to 7.2% in September 2020. In parallel, the Fund indicated that the banks’ non-performing loans (NPLs) ratio stood at 25.8% at the end of September 2020, up from 21.5% at end2019; while the banks’ provisions to gross NPLs excluding accrued interest declined from 76.1% at end-2019 to 71% at the end of September 2020. Further, it noted that the BCM reduced reserve requirements for banks from 7% to 5% in March 2020 to mitigate the impact of the COVID-19 outbreak. However, it pointed out that the BCM raised the requirement to 6% in December 2020 in order to address the potential risks from a surge in liquidity. It added that the banks’ aggregate liquid assets represented 25.7% of total assets in September 2020 relative to 21% at the end of 2019, while the private sector’s loans-to-deposits ratio reached 90.7% in September 2020 compared to 94.7% at the end of 2019. Also, the IMF indicated that the BCM temporarily allowed banks to breach the minimum liquidity coverage ratio of 100% and set the new minimum at 80%. It added that authorities are planning to adopt International Financial Reporting Standards by the end of 2021.