Moody’s downgrades government debt from Ba3 to B1 but changes outlook from negative to stable
The government’s debt has been downgraded from Ba3 to B1 by Moody’s Investors Service, but the rating agency decided to change the outlook from negative to stable, according to a statement released Tuesday.
According to Moody’s, the stable outlook incorporates Moody’s view that the government’s efforts will eventually prove effective in consolidating fiscal accounts over the next three years notwithstanding the rigid spending structure.
The rating agency said the B1 rating captures the economy’s reduced shock absorption capacity and the continued increase in the debt ratio projected over the next three years, to 75% of GDP in fiscal 2024.
“Stagnating trend growth and income levels point to persistent social spending pressures including mitigating the fallout from higher food and energy prices triggered by the Russian invasion of Ukraine, thereby increasing the risk of fiscal slippages,” the rating agency added.
Referring to the substantial loans from the African Development Bank, Moody’s said “On the external side, the foreign exchange reserve buffer bolstered by external support during the pandemic provides a backstop against the sharp widening in the current account deficit projected over the next two years.”
Meanwhile, the agency said large gross borrowing requirements at 20% to 30% of GDP and weakening debt affordability expose the credit profile to tightening domestic and external liquidity conditions to stem rising global inflation.