Algeria Economy Contract, Ethiopia Weaker Economic Activity

LAGOS (Capital Markets in Africa) – IHS Markit projected Algeria’s economic activity to contract by 5% in 2020 due to the imposition of restrictive measures to address the coronavirus pandemic, as well as to lower hydrocarbon exports. Also, it forecast the fiscal deficit to widen from 8% of GDP in 2019 to 10% of GDP in 2020, despite the government’s plan to reduce spending by 30% this year. It anticipated that the government is likely to maintain high subsidy levels to avoid triggering social unrest, given the reliance of the population on social spending and subsidies. But it expected the government to reduce fixed investment by more than 5% in 2020. It considered that the Algerian authorities are likely to focus on finalizing infrastructure projects, and would delay large-scale new projects in the coming one to two years in order to cope with the current crisis. It also expected the public debt level to rise from 45% of GDP at the end- 2019 to 55% of GDP at end-2020, as it anticipated that the government will likely issue local debt to finance its deficit. Further, it indicated that Algeria continues to post wide current account deficits, despite the introduction of measures since 2017 to reduce the import bill. It projected the current account deficit to widen from 9% of GDP in 2019 to 23% of GDP in 2020, mainly due to an anticipated decline of 35% in export receipts. Further, it forecast official foreign currency reserves to decline from $63bn at end-2019 to less than $50bn at the end of 2020, while it expected the Algerian dinar to depreciate by around 20% this year.

Ethiopia: Outlook revised to ‘negative’ on weaker economic activity and external position
S&P Global Ratings affirmed Ethiopia’s ‘B/B’ long- and short- term foreign and local currency sovereign ratings, while it revised the outlook on the long-term ratings from ‘stable’ to ‘negative’. It attributed the outlook revision to the volatile global economic backdrop that is likely to weaken the country’s economic activity and external position over the next 12 months. It expected the outbreak of the coronavirus to weigh on sectors that generate foreign currency, including agriculture, travel, tourism, and exports. It projected foreign currency reserves to decline from $3.6bn at the end of 2019 to $2.6bn at end-2020, and to cover 2.3 months of current account payments. It also forecasts the current account deficit to exceed 7% of GDP in the 2020-21 period. In addition, it considered that Ethiopia’s growth prospects could moderate through 2021 due to the negative impact of the pandemic and of foreign exchange shortages on domestic consumption and private investment. It added that slower growth in China, the country’s largest trading partner, and main official creditor, is likely to weigh on Ethiopia’s economic activity in 2020 and 2021. It forecast real GDP growth to average 5.5% annually in the 2020-23 period, down from 9% annually in the 2015-19 period. In parallel, S&P indicated that low public revenues, combined with still- high debt servicing costs, could expose the government to higher contingent risks, put strains on foreign currency reserves, and weaken the government’s ability to service commercial financial obligations. It noted that the public sector’s external debt is equivalent to 8.5 times the level of foreign currency reserves.