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Economy

Covid-19 outbreak and falling oil prices risk capital flight from sub-Saharan Africa

Financial ratings agency Fitch said Wednesday that the outbreak of the new coronavirus coupled with falling oil prices could lead to a capital flight from Africa, where governments face economic difficulties.

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"The gloomy sentiment not only affects funding in international markets, it can also lead to outflows of investments and capital in places where there are investments in local currency," analyst Mahmoud Harb told Bloomberg financial information agency on the day the rating agency sent a report on the effects of the outbreak and falling oil prices in Africa and the Middle East.

The main exporters in sub-Saharan Africa (Nigeria and Angola) are especially vulnerable, the analyst noted, noting that oil lost 25 percent of its value on Monday after major producers disagreed on cuts to production to balance the reduction in demand motivated by the spread of Covid-19.

Foreign investors have already sold 1.2 billion dollars in debt securities from South Africa this month, and unlike the 2014 crisis that pushed commodity producers into recession, African countries are now without room to increase public spending.

In addition to the high public debt that affects most African countries, the governments of this region "have limited budgetary space and external cushions, in the sense that they do not have assets available for counter-cyclical use, such as large, well-equipped sovereign funds," warned Mahmoud Harb.

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