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'Sub-Saharan Africa outlook up'

01.01.70

Johannesburg - The 2006 outlook for Sub-Saharan Africa remains good, supported by high commodity prices and the G8 Multilateral Debt Relief Initiative (MDRI), Fitch Ratings said in a special report issued on Wednesday that coincides with the annual meetings of the African Development Bank.
The MDRI will see the cancellation of between 40%-80% of the outstanding public external debt of 13 countries. This, coupled with the second phase of Nigeria's bilateral debt deal, will result in a further substantial decline of the regional public external debt burden.

"The major challenge for the governments concerned will be to make good use of the flexibility offered by the substantially lower debt burdens and additional financial resources from donors and revenue windfalls from oil and other commodities to address poverty, and promote investment and development," according to Veronica Kalema, Director in Fitch's Sovereigns team.

Fitch views the MDRI as positive for creditworthiness as it greatly enhances the future debt sustainability of the countries involved.

The report states: "Public external debt ratios will fall to low levels, comparable to those of countries further up the rating scale. However, Fitch will not be upgrading countries on the basis of MDRI alone.

"On other measures of creditworthiness such as income per capita, their export bases and investment, these countries remain weak."

Fitch notes that given the region's reliance on raw material exports, the rise in commodity prices over the past two to three years has been particularly beneficial. For many oil importers, high non-oil commodity prices have helped soften the impact of the oil price on the balance of payments while aiding fiscal consolidation.

Around 11 oil-producing countries have benefited from a substantial terms-of-trade improvement, while new oil is coming on stream in some countries.

Fitch said: "Although ratings in sub-Saharan Africa are typically in the 'B' rating range, which encompasses a high level of economic and political risk, the countries' lengthening track records of better economic management have supported macroeconomic stability and faster growth.

"Debt relief and concessional borrowing are helping address their deep-rooted social, developmental and institutional challenges."

High commodity prices, coupled with reforms are allowing a few countries that are rich in natural resources, such as Nigeria, to fundamentally improve their creditworthiness, it added.

Expert opinion

Halter Marek

02.12.06

Halter Marek
Le College de France
Olivier Giscard dEstaing

02.12.06

Olivier Giscard dEstaing
COPAM, France
Mika Ohbayashi

02.12.06

Mika Ohbayashi
Institute for Sustainable Energy Poliy
Bill Pace

02.12.06

Bill Pace
World Federalist Movement - Institute for Global Policy
Peter I. Hajnal

01.12.06

Peter I. Hajnal
Toronto University, G8 Research Group