Africa-Press – Lesotho. The avalanche of sovereign credit rating downgrades for African countries will see the region suffer terrible consequences. A balanced approach is urgently required.
The economic downturn created by the Covid-19 pandemic, which begot Africa’s first recession in 25 years, also triggered an avalanche of sovereign credit rating downgrades across the region.
In one of the most dramatic moves on record, 18 of the 32 African countries rated by at least one of the ‘big three’ agencies (Fitch, Moody’s, and S&P) endured downgrades at the peak of the pandemic downturn in 2020, heightening uncertainty and potentially exacerbating the crisis.
Several studies have shown that sovereigns that suffer such demotions are likely to experience a deterioration of their macroeconomic fundamentals and an increase in foreign currency borrowing costs.
This landslide of procyclical downgrades affected more than 56% of rated African countries, significantly above the global average of 31.8% as well as averages in other parts of the world (45.4% in the Americas, 28% in Asia, and 9.2% in Europe).
The share of affected African nations is even higher (62.5%) if we extend the period covered to include the two countries downgraded in the first half of 2021.