Fitch Solutions Forecasts Significant Budget Shortfalls for Ghana, Uganda, and Nigeria Amid Fiscal Risks
A report by Fitch Solutions warns of significant budget shortfalls anticipated in Ghana, Uganda, and Nigeria as governments across Sub-Saharan Africa grapple with persistent fiscal risks. The UK-based firm highlights that many countries in the region will increasingly rely on both domestic and external borrowing to cover rising fiscal deficits in 2025.
The article, titled “Return to International Capital Markets Belies Persistence of Fiscal Risks in Sub-Saharan Africa,” notes that the region is experiencing mixed progress in fiscal consolidation efforts. High debt servicing costs, exacerbated by tight external and domestic financial conditions since 2022, are expected to continue placing substantial pressure on government spending.
Fitch warns that attempts to address budget deficits through tax reforms are likely to encounter obstacles stemming from structural revenue constraints. Domestic yields remain elevated, despite a gradual shift towards monetary easing within the region. In the second quarter of 2024, the GDP-weighted average yield on 10-year government bonds in Sub-Saharan Africa reached 12.63%, just surpassing the previous peak of 12.62% recorded in late 2022, following Russia’s invasion of Ukraine and the tightening of global financial conditions.
The report also points out that the spread between Sub-Saharan African bonds and US 10-year Treasuries has widened, reflecting various domestic challenges. Notably, monetary tightening in Nigeria and election-related volatility in South Africa have contributed to this disparity. By the fourth quarter of 2024, yields remain elevated in countries like Nigeria and Kenya, driven by ongoing monetary tightening and increased political risks.
As these fiscal challenges persist, governments will need to adopt prudent economic policies and innovative financing strategies to stabilize their economies and ensure sustainable growth amidst a turbulent financial landscape.
