African regional and local governments’ (RLGs) fiscal capacity is too weak to fund their capital needs, a credit negative factor that perpetuates under-investment in infrastructure and will constrain sustainable development across the continent, Moody’s Investors Service said in a report released on Tuesday.
According to the rating agency, rapid urbanisation and low historical infrastructure investment have created significant demand in African cities for capital expenditure in areas such as energy, water supply and transport.
“Africa is the world’s fastest urbanising region,” said Zoe Jankel, a Moody’s Vice President – Senior Analyst and the report’s author.
“Despite rapidly rising infrastructure and capital expenditure needs in urban areas, there is still a significant financing gap estimated at some $30 billion per year,” he added in a statement issued in Nairobi.
African RLGs, said Moody’s face many challenges in funding infrastructure due to their weak fiscal capacity and limited decentralisation – the shifting of administrative, political and fiscal powers from national or central governments to lower levels of government.
“Despite attempts to decentralise budgets, African RLGs continue to rely heavily on sovereign transfers, which limits their ability to respond to local needs, particularly where the sovereign’s own fiscal strength is low,” added the statement.
Moody’s pointed out that urbanisation rates differ among African countries and regions, with East Africa expected to be the last region to urbanise.
Its city governments will face tremendous pressure to meet increasing social demands for infrastructure and basic services, noted the rating agency.
JK/abj/APA