By Fitch Solutions has revealed in an article that substantial budget shortfalls are expected in Ghana, Uganda, and Nigeria.
Titled “Return To International Capital Markets Belies Persistence Of Fiscal Risks In Sub-Saharan Africa,” the report from the UK-based firm highlights that many governments in the region will continue to rely on domestic and/or external borrowing to cover budget deficits in 2025.
This assessment comes against a backdrop of varied progress in fiscal consolidation across Sub-Saharan Africa (SSA).
“Elevated debt servicing costs, a symptom of tight external and domestic financial conditions since 2022, will continue to exert upward pressure on government spending, while structural constraints on revenue generation will limit the effectiveness of tax-driven deficit reduction measures”.
Meanwhile, domestic yields remain high despite a gradual regional shift towards monetary easing.
Based on a quarterly Gross Domestic Product-weighted average of SSA 10-year government bonds, yields reached 12.63% in Q2 2024. This surpasses the previous peak of 12.62% recorded in Q4 2022 following Russia’s invasion of Ukraine and the subsequent tightening of global financial conditions.
The spread with 10-year US Treasuries also widened, indicating several domestic pressures such as monetary tightening in Nigeria and election-related volatility in South Africa.
Yields remained elevated through the fourth quarter, particularly in Nigeria and Kenya, due to continued monetary tightening and heightened political risks, respectively.
