OREANDA-NEWS. Fitch Ratings expects additional stress to fiscal and external positions in Sub-Saharan Africa (SSA) in 2016 owing to slow global growth, flagging demand for commodities, and tightening financing conditions, all of which have the potential to negatively impact SSA sovereigns. Nevertheless, Fitch forecasts SSA to remain one of the fastest growing regions of the world, with median GDP growth of 5% in 2016. This represents an improvement over 2015, albeit less than the average of 5.7% that the region saw in 2010-14.

South Africa, SSA's second largest and most globally integrated economy, enters 2016 against a backdrop of political and market instability, following the dismissal of Finance Minister, Nhlanhla Nene, in December and the replacement of his initial successor just four days later. On 4 December, Fitch downgraded South Africa to 'BBB-,' owing to deteriorating economic growth prospects, rising government debt, and a persistent current account deficit.

In other SSA countries, subdued commodity prices will weigh on GDP growth through lower external receipts, public spending and investment in commodities sectors. Fitch forecasts an average Brent price of USD55/barrel in 2016, with risks on the downside, which will challenge the region's oil producers, particularly Angola, Nigeria, and the Republic of the Congo, all of which earn greater than 60% of government revenues from oil exports. SSA countries that export agricultural commodities will experience less pressure as a major drought will push up prices for some agricultural products.

The outlook for the region's public finances is more strained. Both the 2016 median fiscal balance and median public debt level will remain approximately at their 2015 levels, 4.4% and 43% of GDP respectively. The booming commodities markets of recent years have allowed governments to increase spending both directly through increased revenues and indirectly by facilitating greater access to international capital markets. As global conditions lower commodity revenues, however, SSA governments that are unable to rationalise public expenditures and adopt expenditure frameworks that keep public debt metrics from deteriorating could see negative rating actions.

Looming Fed tightening and more volatile capital inflows to emerging markets will not necessarily limit SSA's access to capital markets, but will mean higher yields for new issuance. These same factors will also continue to put pressure on the regions' currencies, which will further stress governments' ability to service foreign currency-denominated debt.

SSA central banks will face a difficult balancing act as a mixed global growth outlook and flagging external receipts will depress domestic growth prospects, while further currency depreciation will increase inflationary pressures. Many SSA central banks have increased rates towards the end of 2015 in anticipation of Fed hiking. One exception was Nigeria, where the central bank has lowered its monetary policy rate by 200bps, citing growth concerns.

Nigeria is currently rated 'BB-' and its Negative Outlook is, in part, based on risks related to monetary policy. The appointment of a Finance Minister, after six months with no cabinet, and the announcement of a 2016 draft budget could support the ratings, provided the government can execute structural reforms while preserving the country's low debt-to-GDP ratio.