Summary

The negative outlook for Sub-Saharan African (SSA) sovereign credit fundamentals reflects credit risks stemming from the sovereigns' large debt burdens compared with their revenue and the difficulty many will have refinancing at rates they can afford. At the same time, slowing global economic growth will weigh on exporters while also reducing the
sovereigns' financial capacity to mitigate social risks. But there are country-specific positive developments such as ongoing structural reforms to strengthen institutions and governance.

» Refinancing risk is high for upcoming debt maturities. SSA sovereigns have a large amount of foreign currency debt maturing in 2024 and beyond. Refinancing risk is high given tight financing conditions, foreign currency shortages and narrow funding sources. Chinese lending to SSA – a key funding source for the past decade – is retrenching, while
multilateral development banks' (MDBs) capacity to replace maturing commercial debt with concessional financing is limited. Weak governance and political risks limit some SSA sovereigns' capacity to meet MDB conditionality and contribute to investor risk aversion.

» Slowing global GDP growth, higher debt burdens increase vulnerability to social and environmental risks. We expect global GDP growth to slow in 2024, which will weigh on SSA credit quality. Slowing growth in China in particular will weigh on SSA commodity exporters. Weaker growth dynamics will limit SSA sovereigns' ability to address social risks such as high unemployment, and environmental risks such as extreme weather events. The potential for renewed food and fuel price shocks is also a risk to social stability, especially in low-income countries.

» Efforts to strengthen governance, institutions and business conditions – as well as other green shoots – create a few bright spots. SSA sovereigns implementing reforms to improve governance and institutional capacity may see improved creditworthiness, albeit from a low base. Some SSA sovereigns stand to benefit from increased energy
production or the global transition to low-carbon energy sources. Completion of debt restructurings for those sovereigns in default are likely to improve credit metrics.

» What could change the outlook. SSA sovereigns regaining access to global capital markets and refinancing maturities at affordable rates would be consistent with a stable outlook. Much higher disbursements of concessional MDB financing, easing of inflationary pressures and reduced social tensions would also support a stable outlook.