Average gross domestic product (GDP) growth for the 16 countries rated by Fitch Ratings in sub-Saharan Africa (SSA) was expected to rise above 5% in 2014, the ratings agency said in its SSA Credit Overview on Monday.

Fitch expected SSA to continue benefitting from rising foreign direct investment (FDI) during the next year, particularly in emergent oil and gas producers such as Mozambique, Kenya and Uganda.

Public infrastructure spending would trend upwards, as governments gained access to new sources of funding and improved their implementation capacity, while rising public sector wages in a number of countries, combined with improving access to credit, would support private sector consumption.

The agency also did not expect the US Fed tapering to place significant pressure on SSA countries’ domestic and external financing capacity.

“The prospect and threat posed by Fed tapering will top the agenda in 2014. [While] an improvement in credit fundamentals over the past decade should make most SSA countries resilient, countries [such as] South Africa and Ghana, which run large current account and budget deficits and have become increasingly dependent on foreign inflows to fund both the budget and the current account, will be most at risk,” Fitch said.

Meanwhile, the agency stated that two divergent credit themes had gained traction across SSA since May 2013.

The sharp deterioration in government finances and weak commitment to fiscal consolidation prompted downgrades in Ghana and Zambia.

“In Ghana, during 2013, the authorities continued to overrun on wages, interest costs and arrears, leading Fitch to forecast that the government would fail to meet the 9% of GDP fiscal deficit target; this was subsequently confirmed by the government.

“Zambia's budget deficit jumped to an estimated 8.5% of GDP from a budgeted 4.5%, largely owing to overspending on subsidies. A 38% increase in the wage bill will see the deficit remain elevated at 6.6% of GDP in 2013,” Fitch said, adding that it expected spending would overrun again in 2014, reflecting the cost of the wage increase and higher debt service costs. 

In contrast, a steady record of prudent macroeconomic policies, built up over more than a decade, strong growth prospects and commitment to reforms and infrastructure investment, were among the factors that contributed to the upgrade of Mozambique, as well as positive outlooks for Uganda and Rwanda.

Fitch stated that it expected the development of the coal and natural gas sectors to support growth of 7% to 8.5% between 2013 and 2015, in Mozambique, owing to the scale of FDI, which was estimated at $5-billion a year.

“However, Fitch acknowledges the risk posed by potential delays in infrastructure investment, falling prices and political violence.”

Meanwhile, in Uganda, where revenue as a percentage of GDP had remained little changed at 13% of GDP for much of the past decade, a renewed commitment to tackle weak revenue growth through tax reforms also contributed towards the Fitch upgrade.

Further, aid had resumed following the 2012 "donor crisis" in neighbouring Rwanda, which proved only temporary against a background of continued cooperation with the international community, highlighting Rwanda's ability to adjust its budget, despite aid making up 40% of total revenue, Fitch said.