Commodity price slump hits Sub-Saharan African exporters hard

Sub-Saharan African (SSA) commodity exporters will continue to suffer from the commodity price shock, despite efforts to diversify their economies and build buffers, Moody’s Investors Service said in a report.

It said lower commodity prices have left many SSA commodity exporters with slower growth, weaker currencies and increased fiscal and external balances at a time when their governments have little space to protect their economies through macroeconomic policies.

“We expect most SSA commodity exporters to experience decelerating or stagnating real GDP growth in 2015,” said Zuzana Brixiova, Vice President — Senior Analyst and co-author of the report. “The slowdown has had a disproportionate impact on countries that grew rapidly prior to the commodity price shock, and where the growth was driven by increased exports.”

Flexible exchange rates have helped absorb the shock in several countries, reducing the impact on the current account and fiscal balance, the report said. “However, countries like Angola, Ghana and Zambia have increased international bond issuance and have seen a rising share of foreign-currency denominated debt also due to valuation effects,” said Matt Robinson, Manager of Moody’s Africa Sovereign Ratings team.

Most SSA commodity exporters have responded with a variety of fiscal and monetary measures aimed at achieving a balance between growth and stabilisation. However, they have been constrained by weakening currency, rising inflation, pressure to consolidate government finances and the deterioration in their financial buffers due to rising fiscal deficits and public debt.

“With commodity prices projected to stay lower for longer, it will take time to replace the multi-year losses in government and export revenues,” Ms. Brixiova added. Investment rates among some commodity exporters are projected to decline in 2015 and beyond, hampering potential growth.

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