Fitch Ratings agency said it is unlikely that the implementation of the African Continental Free Trade Agreement (AfCFTA) alone would lead to changes in the sovereign credit rating of countries.
Fitch said the agreement could have a positive African credit impact in the long run, in the event that trade liberalization improves business conditions and boosts economic growth.
African FTA Growth Impact Too Small to Affect Ratings
Covid effect
“Other factors, including the impact and policy response to Covid-19 and macroeconomic stability more generally, will exert a stronger influence on sovereign ratings,” the agency said.
“It is not yet clear how effectively the terms of AfCFTA will be implemented or enforced.”
“The impact of trade liberalisation should be positive for the region’s economic potential.”
A study published by the AU Commission and OECD in 2019 estimated that removing all tariffs on intra-African trade could boost GDP by 0.65%.
The trade agreement, which entered into force on Jan. 1st, seeks to remove tariffs on 90% of the goods and prepare for the establishment of a customs union at the continental level.
“We have only two sovereign ratings (Cote d’Ivoire and New Zealand) on Positive Outlook so upgrades of any major economies currently look unlikely in 2021”, Tony Stringer, chief operating officer of the rating agency’s Global Sovereigns and Supranationals.
Downgrade
“The two regions that have already seen the most rating downgrades (Latin America and Middle East & Africa) display the highest level of vulnerability to further negative action, with 9 and 12 Negative Outlooks respectively”, Stringer said.
Fitch said in December the Coronavirus spread related uncertainty, as well as the economic repercussions of the pandemic will continue to put pressure on global public finances in 2021.
It is noteworthy that Fitch International Credit Rating Corporation is a wholly owned subsidiary of Hearst, in April 2012 Hearst increased its stake in the Fitch Group to 50%.
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