While most Sub-Saharan African sovereigns plan to consolidate their budgets to stabilise debt, they are now more vulnerable to potential negative economic and financing because they are in a weaker fiscal position than five years ago, Moody’s Investors Service said in a report on Thursday.
In the event of shocks, spending flexibility – defined as countries’ scope to cut government spending rapidly and significantly – allows sovereigns to broadly adhere to their plans and lends resiliency to fiscal strength.
“Expenditure cuts are often less complex to implement quickly than revenue-raising measures,” said David Rogovic, a Moody’s Vice President – Senior Analyst and the report’s co-author.
“The credit risks associated with lack of spending flexibility are most pronounced where it coincides with higher debt burdens and for those whose fiscal metrics are more vulnerable to shocks,” he added.
Based on Moody’s assessment of the proportion of mandatory spending relative to the regional average, Rwanda (B2 stable), Cameroon (B2 stable) , and Cote d’Ivoire (Ba3 stable) have the most flexible spending structures.
Higher-than-average spending flexibility in Rwanda and Cameroon mitigates some of the risks associated with a rising government debt burden, if governments are willing and able to use that flexibility in the face of a shock, the rating agency noted in a statement issued in Nairobi.
According to Moody’s noted that by contrast, mandatory spending accounts for over 80 percent of total spending in Namibia (Ba1 negative) , Mauritius (Baa1 stable) , South Africa (Baa3 stable) and Ghana (B3 stable).
For Namibia and Ghana, rigid expenditure combines with other fiscal weaknesses to increase pressure from shocks on their fiscal strength and credit profiles, noted Moody’s.
JK/as/APA