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The July 2005 G8 announcement of debt forgiveness for the poorest nations will have little immediate effect on the ratings of sub-Saharan African sovereigns covered by the initiative, Standard & Poor’s Ratings Services says in a report published on September 22, 2005.
The report, entitled “Aid And Africa: The Sovereign Ratings Perspective ‘, was published on RatingsDirect, Standard & Poor’s Web-based credit analysis system. It also forms part of the fourth edition of Standard & Poor’s “Sovereign Ratings In Africa “brochure, published in cooperation with the United Nations Development Programme (UNDP) on the eve of the annual meetings of the board of governors of the World Bank Group and the International Monetary Fund in Washington.
“Despite the improvement in the external debt positions of eligible countries that the G8 proposals imply, the benefits for external liquidity and government finances are likely to be limited,” says Farouk Soussa, director of Africa sovereign ratings at Standard & Poor’s. “Moreover, other serious constraints to the ratings will remain unaffected by the G8 proposals, and will only be addressed by continued structural reforms.”
In addition to pan-regional commentaries, the “Sovereign Ratings In Africa “brochure incorporates summary analyses of all the 13 sovereigns in Africa that have been assigned ratings by Standard & Poor’s, and of the African Development Bank (AAA/Stable/A-1+), the continent’s flagship multilateral development finance institution.
Economic growth across Africa in 2004 was strong, and the prospects for credit ratings on the continent are relatively promising. The majority of the assigned ratings benefit from stable outlooks, while two sovereigns have been upgraded so far in 2005, namely the Republic of South Africa (foreign currency BBB+/Stable/A-2; local currency A+/Stable/A-1) and the Kingdom of Morocco (foreign currency BB+/Stable/B; local currency BBB/Stable/A-3). Only one rated African sovereign, the Republic of Cameroon (CCC/Stable/C) faced a deterioration of credit quality in the past year, being downgraded in December 2004.
“This overall positive assessment for credit quality in the region should not obscure the challenges that African sovereigns face,” says Soussa. “In particular, a sustained improvement in the economic and fiscal performance of rated African sovereigns will be contingent on structural reforms to address poor economic management and governance, economic vulnerability to exogenous shocks and natural disasters, and a low level of economic development.”