Budget shortfalls in Ghana, Nigeria, and Uganda are set to be substantial, according to a recent report by Fitch Solutions.

In a study titled “Return to International Capital Markets Belies Persistence of Fiscal Risks in Sub-Saharan Africa,” the UK-based research firm warned that many governments in the region will continue to rely on both domestic and external borrowing to address fiscal deficits in 2025. This comes amidst uneven progress on fiscal consolidation efforts across Sub-Saharan Africa (SSA).

Fitch Solutions highlighted that the elevated cost of servicing debt, driven by tight domestic and external financial conditions since 2022, will continue to increase government spending. At the same time, structural challenges in generating revenue will limit the effectiveness of tax-based efforts to reduce deficits.

Despite some countries in the region beginning to shift towards monetary easing, domestic yields have remained high. A quarterly analysis of SSA’s 10-year government bonds, weighted by Gross Domestic Product, showed that yields reached 12.63% in the second quarter of 2024, surpassing the previous high of 12.62% recorded in late 2022, following Russia’s invasion of Ukraine and the ensuing global financial tightening.

The spread between these bonds and 10-year US Treasuries has also widened, reflecting a range of domestic pressures, including monetary tightening in Nigeria and election-related volatility in South Africa. As of the fourth quarter of 2024, yields remained particularly high in Nigeria and Kenya, driven by ongoing monetary policy adjustments and elevated political risks.

Source: TheDotNews