Johannesburg - South Africa, Kenya and Ghana, which have some of sub-Saharan Africa’s biggest economies, are among nations most at risk from capital outflows that may come if the Federal Reserve curbs stimulus, Fitch Ratings Ltd. said.
Countries in the region that rely on short-term capital flows to finance large current-account and budget deficits are very vulnerable to the tightening of global liquidity conditions, Carmen Altenkirch and Richard Fox, analysts at the London-based ratings company, said in a report today.
“South Africa, Kenya and Ghana are not alone among sub- Saharan Africa in having large current-account and budget deficits, but vulnerability is mitigated in other countries,” Fitch said.
“In Mozambique much of the current-account deficit is financed through foreign direct investment, while Rwanda receives substantial concessional funding.”
Speculation about when the Fed will start tapering its $85 billion-a-month monetary stimulus program has weighted on emerging-market currencies in countries that rely on short-term flows into their bond and equity markets to fund deficits.
The rand weakened 16 percent against the dollar this year, the Kenyan shilling retreated 1 percent and Ghana’s cedi lost 13 percent.
South Africa is forecast to run a budget deficit of 4.6 percent of gross domestic product in the year through March 2014, while the shortfall on the current account is forecast at 6.2 percent this year, according to the National Treasury.
Ghana’s fiscal shortfall in the first seven months of 2013 was 6.3 percent of GDP, compared with a target of 5.6 percent, the Bank of Ghana said on September 18.
Kenya’s current-account gap widened to $4.7 billion in May from $3.84 billion a year earlier, the Central Bank of Kenya said on August 13.
Sub-Saharan Africa would still be less vulnerable to Fed tapering and monetary tightening than more mainstream emerging markets “due to external financing requirements and the largely non-concessional nature of their foreign debt,” according to Fitch.
“Sub-Saharan Africa is also shielded by financial markets which are not as globally integrated and improved reserve cover.” - Bloomberg News