There are a few chinks of light for the 55 emerging market sovereigns that S&P Global Ratings rates in Europe, the Middle East, and Africa (EMEA) at the midpoint of 2023, at least compared to a year ago. Credit conditions are stabilizing, albeit at higher interest rates, across middle-income commodity-importing economies, including Hungary, Poland, and Romania. This is thanks to improved visibility on the U.S. Federal Reserve's rate-tightening cycle, despite nervousness about persistently high core inflation globally; generally prudent monetary and fiscal policy settings in most of emerging EMEA; and a reversal of energy price shocks.

In the aftermath of elections in Nigeria and Turkiye, the governments there are adjusting their monetary policy settings, a shift that, in our view, could help them to rebuild foreign-exchange (FX) reserves and put a line under retail FX demand. At the same time, policymakers in both economies can expect a protracted battle with elevated inflation and currency volatility.

Even though the middle-income economies are showing macroeconomic resilience despite softening data from China, and the inflation dividend continues to buoy fiscal receipts, there is still plenty to worry about. Fiscal space is in short supply, and the cost of new debt remains notably higher than it was two years ago, particularly for sovereigns with lower ratings. High inflation is unpopular among households, which have a high propensity to hedge against it by purchasing foreign currency or whatever else insures them against exchange-rate volatility. In most of the emerging markets, the dollar remains king.

Meanwhile, the war between Russia and Ukraine persists, and the recent standoff between the Russian state and the Wagner mercenary group highlights the rising social, economic, and political costs of the conflict to Russia. This may imply an earlier end to the war, but what that end would look like is uncertain. It also raises the risk of more extreme scenarios, including the possibility of the Russian state losing control of key military assets. As recently as June 19, 2023, U.S. President Joe Biden characterized the risk of Russia using tactical nuclear weapons as real. Perhaps the most immediate implication of the war-related uncertainty is the increasing probability of yet another inflationary supply shock via higher prices for gas, oil, wheat, fertilizer, and other key commodities as we head into autumn.

Of the 55 emerging market sovereigns we rate in EMEA, seven have negative outlooks--Egypt, Ethiopia, Kenya, Nigeria, Turkey, Uganda, and Ukraine--and all these seven have ratings of 'B' or below. The key factors in these outlooks reflect the legacy of the pandemic and the repercussions of the Russia-Ukraine war, namely, elevated inflation (except in Kenya); above-average debt burdens relative to tax collection (except in Turkiye); and constrained coverage of external payments by net reserves, most notably for Egypt, Ethiopia, and Turkiye.

Meanwhile, Ghana has defaulted on its commercial foreign-currency obligations, as have Belarus, Lebanon, and Zambia. However, on June 23, 2023, Zambia announced an agreement to restructure $6.3 billion of official bilateral obligations, while explicitly ruling out a restructuring of its domestic commercial debt. Ethiopia also remains in debt restructuring talks with its principal creditors--Chinese financial institutions.

Armenia, Bosnia, and Bahrain have positive outlooks, reflecting net inward migration and capital flows into Armenia, a stabilizing macroeconomy in Bosnia, and efforts at fiscal consolidation in Bahrain.

Five of the largest emerging market economies in EMEA--Egypt, Nigeria, Turkey, Poland, and South Africa--are under pressure to reset their fiscal, structural, and monetary policies. This reflects a ratcheting up of currency and inflation pressures in Egypt, Nigeria, and Turkey, and uncertainty over whether Poland will receive as much as 5% of GDP in future EU Cohesion Fund and Next Generation capital inflows.

Egypt (B/Negative)

A key pillar of Egypt's IMF extended fund facility program is an agreement by the Central Bank of Egypt to float the Egyptian pound. Recent delays to the currency adjustment reflect domestic policymakers' understandable concern that depreciation will quickly turn into even higher inflation, currently at 33%, and make the June 2023 fiscal year budgetary targets unachievable. The delays in the currency adjustment are, at the same time, the principal reason why foreign-currency remittances from abroad are down 23% year on year. Potential bidders in key state privatizations also appear to be waiting for a currency adjustment before committing to participation.

The consequences of the delays also include a domestic FX shortage, which is contributing to the numerous bottlenecks in Egypt's economy. Egypt's fiscal plans include operating large recurrent primary surpluses, but one wonders whether the debt sustainability challenge is ultimately more about balance of payments than budgetary outcomes. By EMEA standards, Egypt is not a particularly open economy, with exports of goods and services (including Suez Canal receipts and tourism) at 22% of GDP. Tax administration also remains a challenge, with revenues to GDP at 19%, debt to revenues of 489%, and interest to revenues of just under 40%.

Nigeria (B-/Negative)

Like Egypt, Nigeria's parallel exchange-rate regime, relatively closed economy, weak tax administration, and governance challenges, most notably in boosting hydrocarbon production, explain both its failure to leverage the post-pandemic rally in oil prices and the 'B-' sovereign rating. Nevertheless, on June 14, 2023, the incoming administration of President Bola Tinubu announced a series of steps to liberalize the currency regime. These came just a week after the new government ended subsidies on petrol.

In our view, the adjustment in the currency over the past month and the simplification of converting local into foreign currency should boost capital flows into the financial markets and the real economy. Moreover, while weak tax administration is a credit weakness, net useable reserves are comfortable relative to foreign-currency debt-servicing requirements, despite the domestic FX shortage.

Turkiye (B/Negative)

The parliamentary and presidential elections are behind us, and a new economic team--including a new Minister of the Treasury and Governor of the Central Bank of the Republic of Turkiye--has been installed. Policymakers have taken the first steps toward normalizing monetary policy settings by raising the key policy rate by 650 basis points to 15% on June 22, 2023. In view of elevated inflation, the key post-election policy objective is to cool down very hot consumption. The latter was up 17% year on year in 2022, according to Turkstat data. At the same time, yet another minimum wage hike legislated last month is a strong indication that fiscal, monetary, and income policies are unlikely to be closely coordinated.

We continue to expect average inflation to remain high well into 2025, although we are more optimistic about how quickly Turkiye's 12-month rolling current account deficit--currently 7% of GDP--will narrow. Does this mean that Turkiye is once again an investible market? We think that the new economic team may try to relaunch the offshore swaps market and step up hard-currency bond sales. However, macroeconomic uncertainty is likely to persist, as the spring elections could represent the limit for the transition to higher domestic policy rates, while the fiscal position will almost certainly deteriorate this year.

What Turkiye does have in its favor is a resilient small-to-midsize enterprise sector and an export-driven economy, with membership of the EU single market. This could facilitate economic rebalancing, particularly as energy prices have corrected at a notably lower level than at this time in 2022.

Poland (A-/Stable)

Poland has a diversified open economy, net reserves of just under $170 billion, and a modest and improving current account fully covered by inflows from the EU and foreign direct investment. Hence Poland appears in a reasonable position to weather expansionary fiscal policy and considerable disruption in the critical supply chains that connect it to the German economy. Underlying inflation remains persistently high, with labor shortages rife. The government's recent commitment to a 24% minimum wage increase next year is unlikely to ease inflationary expectations.

Over the medium term, the key driver of Poland's credit story is the timing of the constitutional tribunal's ruling on the constitutionality of Supreme Court reforms upon which the disbursement of about 5% of GDP in Next Generation EU funds and an additional envelope of EU Budgetary Cohesion funds depends.

South Africa (BB-/Stable)

South Africa's growth prospects remain mired in energy sector and labor market bottlenecks. Declining metal prices and softer Chinese commodity demand explain our 0.8% GDP projection for 2023, which is equivalent to -0.7% on a per capita basis. Low growth explains our projection that South African gross general government debt to GDP will continue to rise between 2023 and 2026, with the economy lacking the fiscal space to respond to economic shocks. South Africa's deep local-currency capital markets and prudent monetary policy settings remain credit strengths.

Table 1

Table 2

Abu Dhabi (AA/Stable/A-1+)

• Analyst: trevor.cullinan@spglobal.com
• Latest publication: (Full Analysis) Emirate of Abu Dhabi, May 29, 2023

Rating score snapshot:

• Institutional assessment: 4
• Economic assessment: 1
• External assessment: 2
• Fiscal assessment – Flexibility and performance: 1
• Fiscal assessment – Debt burden: 1
• Monetary assessment: 4

Outlook: Stable

The stable outlook reflects our expectation that Abu Dhabi's fiscal and external positions will remain strong over the next two years, amid continued prudent policy making and our hydrocarbon sector assumptions.

Downside scenario

We could lower the ratings if Abu Dhabi's strong government balance sheet and net external asset position deteriorate materially. Downward pressure on the ratings could also arise if domestic or regional events compromise political and economic stability in the emirate.

Upside scenario

We could raise our ratings on Abu Dhabi if we observe further progress on institutional reforms, including pronounced improvements in data transparency on fiscal assets and external data. Furthermore, measures to improve the effectiveness of monetary policy in the emirate, such as developing domestic capital markets, could be positive for the ratings.

(Latest research update published on March 27, 2020)

Table 3

Albania (B+/Stable/B)

• Analyst: amr.abdullah@spglobal.com
• Latest publication: (Full Analysis) Albania, March 27, 2023

Rating score snapshot:

• Institutional assessment: 5
• Economic assessment: 4
• External assessment: 4
• Fiscal assessment – Flexibility and performance: 4
• Fiscal assessment – Debt burden: 5
• Monetary assessment: 5

Outlook: Stable

The stable outlook reflects our view that Albania can continue to manage the indirect economic effects from the Russia-Ukraine conflict thanks to its strong external buffers, despite the economic slowdown in Europe, Albania's largest trading partner. In addition, the country's modest growth prospects and the government's fiscal consolidation efforts should facilitate a modest reduction in debt over our 2023-2026 forecast horizon.

Downside scenario

We could lower the ratings over the next year if the public debt stock continues to increase significantly beyond our expectations, due to high fiscal deficits or the materialization of contingent liabilities from public-private partnerships (PPPs).

Upside scenario

We could consider raising the ratings over the next year if external funding risks decrease materially or if a pronounced reduction in fiscal deficits yields a fall in public debts levels. We could also raise the ratings if the institutional framework is strengthened, possibly through structural reforms as a part of the country's EU accession objective.

(Latest research update published on Dec. 9, 2022)

Table 4

Angola (B-/Stable/B)

• Analyst: leon.bezuidenhout@spglobal.com
• Latest publication: (Full Analysis) Angola, Feb. 20, 2023

Rating score snapshot:

• Institutional assessment: 5
• Economic assessment: 6
• External assessment: 6
• Fiscal assessment – Flexibility and performance: 6
• Fiscal assessment – Debt burden: 6
• Monetary assessment: 5

Outlook: Stable

The stable outlook balances the country's still-large external funding needs and financing risks over the next 12 months, amid rising global headwinds, against broadly stabilizing government debt levels over 2023-2026.

Downside scenario

We could lower the rating if the government's access to external funding weakens, which could limit its ability to service external commercial debt; or if a deterioration in the external environment, such as lower oil prices or volumes or increasing social pressures, heightens external and fiscal pressure.

Upside scenario

Although unlikely over the next 12 months, we could raise the rating if economic and fiscal reforms support a sustained recovery in the non-oil economy, while reducing the debt-servicing burden and borrowing costs and increasing foreign currency reserves beyond our projections.

(Latest research update published on Aug. 5, 2022)

Table 5

Armenia (B+/Positive /B)

• Analyst: amr.abdullah@spglobal.com
• Latest publication: Armenia Outlook Revised To Positive On Strong Economic Growth And Improved External Position; 'B+/B' Ratings Affirmed, Feb. 24, 2023

Rating score snapshot:

• Institutional assessment: 5
• Economic assessment: 4
• External assessment: 4
• Fiscal assessment – Flexibility and performance: 4
• Fiscal assessment – Debt burden: 4
• Monetary assessment: 4

Outlook: Positive

The positive outlook reflects our view of improved prospects for Armenia's economy as well as its fiscal and external position due to positive spillovers from the war in Ukraine. Absent substantial regional geopolitical deterioration, labor and financial inflows from Russia could boost Armenia's long-term economic growth potential and structurally improve the country's fiscal and external balance sheets, reducing its vulnerability to shocks.

Downside scenario

We could revise the outlook to stable if over the next 12 months there was a material reversal in financial and labor inflows from Russia, resulting in slower GDP growth, weaker fiscal and external balance sheets, deeper exchange rate depreciation, and faster government and external debt accumulation. Negative rating pressure could also emerge from the possible macroeconomic fallout triggered by an escalation of the conflict with Azerbaijan over the Nagorno-Karabakh region.

Upside scenario

We could raise the ratings within the next 12 months if Armenia's real GDP growth remains strong and its fiscal, balance of payments, and financial stability risks remain contained, including the precautionary three-year Stand-By Arrangement (SBA) with the IMF. Under this scenario, Armenia's dollar income levels will remain higher compared with pre-war levels, budget deficits will be contained, and the central bank's foreign exchange reserve position will stay adequate.

Table 6

Azerbaijan (BB+/Stable /B)

• Analyst: maxim.rybnikov@spglobal.com
• Latest publication: Azerbaijan Ratings Affirmed At 'BB+/B'; Outlook Stable, June 9, 2023

Rating score snapshot:

• Institutional assessment: 5
• Economic assessment: 5
• External assessment: 2
• Fiscal assessment – Flexibility and performance: 1
• Fiscal assessment – Debt burden: 1
• Monetary assessment: 5

Outlook: Stable

The stable outlook reflects our expectation that favorable hydrocarbon prices will support Azerbaijan's fiscal and balance-of-payments positions over the next year, despite a projected medium-term decline in oil production.

Downside scenario

We could lower the ratings if Azerbaijan's fiscal balances prove weaker than we expect over the medium term. This could happen, for example, because aging oil fields result in oil production declining faster than we expect. Reduced hydrocarbon revenue could also weigh on Azerbaijan's broader economic prospects, with real per capita GDP growth falling further below that of peers at a similar level of economic development. We could also lower the ratings if the conflict in Karabakh were to reignite significantly.

Upside scenario

Conversely, we could consider an upgrade if Azerbaijan sustains higher external surpluses for longer than we expect, resulting in sizable additional external asset accumulation. Ratings upside could also build if the government implements reforms addressing some of Azerbaijan's structural impediments, including the undiversified nature of its economy and constraints on monetary policy effectiveness.

Table 7

Bahrain (B+/Positive/B)

• Analyst: giulia.filocca@spglobal.com
• Latest publication: Bahrain 'B+/B' Ratings Affirmed; Outlook Remains Positive, May 26, 2023

Rating score snapshot:

• Institutional assessment: 4
• Economic assessment: 4
• External assessment: 5
• Fiscal assessment – Flexibility and performance: 6
• Fiscal assessment – Debt burden: 6
• Monetary assessment: 4

Outlook: Positive

The positive outlook is supported by continued financial sector stability and the potential for wider current account surpluses over the forecast horizon. We also expect the government will continue implementing fiscal reforms to reduce its budget deficit and benefit from additional support from other Gulf Cooperation Council (GCC) sovereigns, if needed.

Upside scenario

We could raise the ratings over the next 12 months if widening current account surpluses support a significant and sustained improvement in Bahrain's external position. An improvement in the government's budgetary position beyond our expectations, contributing to a sustained reduction in net debt to GDP could also be supportive of the ratings. Further support for an upgrade could come from a significant acceleration in productivity-led per capita economic growth.

Downside scenario

We could revise the outlook to stable if the government's net debt and debt-servicing burden increase beyond our current assumptions, notwithstanding fiscal consolidation measures. We could also revise the outlook to stable if foreign currency reserves decline sharply, limiting the government's ability to service its external debt and weighing on monetary policy effectiveness.

Table 8

Belarus (SD/SD)

• Analyst: SOVIPF@spglobal.com
• Latest publication: (Full Analysis) Belarus, March 20, 2023

Rating score snapshot:

• Institutional assessment: 6
• Economic assessment: 6
• External assessment: 5
• Fiscal assessment – Flexibility and performance: 5
• Fiscal assessment – Debt burden: 4
• Monetary assessment: 6

Outlook

Our long-term foreign currency rating on Belarus is 'SD'. We do not assign outlooks to 'SD' ratings.

The negative outlook on the long-term local currency rating reflects our view that macroeconomic and fiscal stress may weaken the government's ability to stay current on its local currency debt.

Downside scenario

We could lower the long-term local currency rating if we see indications that government obligations denominated in Belarusian rubles could suffer nonpayment or restructuring.

Upside scenario

We could take a positive rating action on the long-term local currency rating in the next 12 months if the macroeconomic and fiscal fallout on Belarus from the Russia-Ukraine conflict proves weaker than we anticipate.

We would raise our long-term foreign currency rating if the government cures nonpayment on its Eurobonds and we do not believe further nonpayments on these bonds are virtually certain. Our post-default sovereign ratings tend to be in the 'CCC' or low 'B' categories, depending on our evaluation of a sovereign's post-default credit factors.

(Latest research update published on Sept. 16, 2022)

Table 9

Benin (B+/Stable/B)

• Analyst: sebastien.boreux@spglobal.com
• Latest publication: Benin 'B+/B' Ratings Affirmed; Outlook Stable, May 5, 2023

Rating score snapshot:

• Institutional assessment: 4
• Economic assessment: 5
• External assessment: 5
• Fiscal assessment – Flexibility and performance: 3
• Fiscal assessment – Debt burden: 5
• Monetary assessment: 5

Outlook: Stable

The stable outlook reflects our expectation that, despite current headwinds and economic uncertainty, Benin's fiscal and external imbalances should improve over the next few years. The national economy will continue to grow over the medium term, supported by the government's economic and fiscal reform program.

Downside scenario

We could lower the ratings over the next 12 months if reforms lag, causing lower-than-expected economic activity, and budgetary performance does not improve as anticipated, for example because of higher-than-expected interest payments or lower-than-expected government revenue.

Stronger pressure on the country's external position, for example from lower-than-anticipated export revenue, could also lead to a downgrade.

Upside scenario

Ratings upside could materialize if economic growth strengthened beyond our current projections, potentially on the back of government reforms. This could reflect accelerated private-sector-led investment and activity, as well as the development of diversified and higher-value-added output. Any positive rating action would likely hinge on stronger fiscal and external deleveraging than we currently expect.

Table 10

Bosnia and Herzegovina (B/Positive/B)

• Analyst: maxim.rybnikov@spglobal.com
• Latest publication: Bosnia and Herzegovina Outlook To Positive On Improved Political Stability And Fiscal Metrics; 'B/B' Ratings Affirmed, Feb. 3, 2023

Rating score snapshot:

• Institutional assessment: 5
• Economic assessment: 5
• External assessment: 3
• Fiscal assessment – Flexibility and performance: 3
• Fiscal assessment – Debt burden: 1
• Monetary assessment: 6

Outlook: Positive

The positive outlook reflects our view that a potentially less confrontational domestic political environment should hold over the next year while BiH's external imbalances remain contained and the government's debt burden stays low at 22% of GDP by year-end 2023, with most debt owed to official creditors at relatively low interest rates and long maturities.

Upside scenario

We could raise the ratings over the next 12 months if the government's balance sheet remains strong and external imbalances remain moderate, despite weakening demand from key trading partners and the sometimes-unpredictable nature of BiH's domestic politics.

Downside scenario

We could lower the ratings if domestic political confrontations escalate, particularly if this leads to a rising likelihood of negative implications for government debt service--for example, by affecting indirect tax revenue or foreign currency reserves at the central bank.

Table 11

Botswana (BBB+/Stable/A-2)

• Analyst: samira.mensah@spglobal.com
• Latest publication: (Full Analysis) Botswana, March 20, 2023

Rating score snapshot:

• Institutional assessment: 3
• Economic assessment: 5
• External assessment: 2
• Fiscal assessment – Flexibility and performance: 2
• Fiscal assessment – Debt burden: 1
• Monetary assessment: 4

Outlook: Stable

The stable outlook balances our expectation that demand for Botswana's diamonds will remain resilient against downside risks stemming from weakening global economic activity.

Downside scenario

We could lower our ratings on Botswana if fiscal or external performance were materially weaker than our forecasts. This could happen, for instance, if the recovery of the upstream and downstream diamond segments was short-lived because of a prolonged global economic slowdown.

Upside scenario

We could raise the ratings if economic growth or wealth levels in Botswana were to significantly increase beyond our expectations, supported by diversification of the export base, which would lead to greater economic resilience.

(Latest research update published on Sept. 16, 2022)

Table 12

Bulgaria (BBB/Stable/A-2)

• Analyst: niklas.steinert@spglobal.com
• Latest publication: (Full Analysis) Bulgaria, May 29, 2023

Rating score snapshot:

• Institutional assessment: 4
• Economic assessment: 4
• External assessment: 2
• Fiscal assessment – Flexibility and performance: 2
• Fiscal assessment – Debt burden: 1
• Monetary assessment: 5

Outlook: Stable

The stable outlook balances Bulgaria's weaker economic growth prospects this year and elevated domestic political uncertainty against the country's low net general government debt and contained interest expenditure. In our view, this affords Bulgaria a policy buffer and leaves its public finances less susceptible to a swift increase in interest rates globally. Bulgaria is currently experiencing high inflation, which, in our view, could pose challenges to it becoming a member of the eurozone over the next two years.

Downside scenario

We could lower the ratings if Bulgaria's economic prospects deteriorated significantly compared with our current expectations. This could occur, for example, due to stronger second-round effects from a slowdown in global growth, the regional security situation significantly worsening, or disruptions of energy imports from Russia threatening the availability of sufficient energy supplies for Bulgaria's economy.

Upside scenario

We could raise the ratings on Bulgaria over the next two years, potentially by several notches, if it became a eurozone member. Improvements in Bulgaria's balance of payments position could also support an upgrade.

(Latest research update published on Nov. 25, 2022)

Table 13

Burkina Faso (CCC+/Stable/C)

• Analyst: etienne.polle@spglobal.com
• Latest publication: (Full Analysis) Burkina Faso, May 15, 2023

Rating score snapshot:

• Institutional assessment: 6
• Economic assessment: 6
• External assessment: 6
• Fiscal assessment – Flexibility and performance: 6
• Fiscal assessment – Debt burden: 4
• Monetary assessment: 5

Outlook: Stable

The stable outlook balances the political, economic, and budgetary headwinds stemming from last year's military coups and Burkina Faso's worsening security situation, against the country's membership in WAEMU.

Downside scenario

We could lower the rating if institutional instability leads to a deterioration in economic growth and fiscal metrics, or if financial sanctions and economic deterioration lead to heightening roll-over risks on Burkina Faso's commercial debt in the next 12 months.

Upside scenario

We could raise the rating if political stability improves, with prospects of ECOWAS and/or WAEMU sanctions becoming more remote, allowing for a stronger-than-expected consolidation path. This could happen if the security and humanitarian situation improves markedly.

(Latest research update published on Nov. 11, 2022)

Table 14

Cameroon (B-/Stable/B)

• Analyst: etienne.polle@spglobal.com
• Latest publication: (Full Analysis) Cameroon, April 3, 2023

Rating score snapshot:

• Institutional assessment: 6
• Economic assessment: 5
• External assessment: 5
• Fiscal assessment – Flexibility and performance: 4
• Fiscal assessment – Debt burden: 3
• Monetary assessment: 5

Outlook: Stable

The stable outlook reflects the balance between macroeconomic risks for Cameroon stemming from the war in Ukraine, volatile terms of trade, and the fragile security situation; against the potential for stronger balance-of-payments and fiscal performance, aided by the IMF arrangement.

Downside scenario

We would lower our ratings if external imbalances and fiscal deficits were to increase beyond our expectations, leading to a sustained decline in foreign currency reserves and doubts about Cameroon's ability to service its debt.

Upside scenario

We would consider raising our ratings if Cameroon's fiscal policies supported declining government deficits, external financing needs eased, or external leverage decreased beyond our expectations. We could also raise the ratings in the event of a sustained decrease in security risks across the country.

(Latest research update published on Oct. 8, 2021)

Table 15

Cape Verde (B-/Stable/B)

• Analyst: samira.mensah@spglobal.com
• Latest publication: Cape Verde, Feb. 20, 2023

Rating score snapshot:

• Institutional assessment: 4
• Economic assessment: 5
• External assessment: 6
• Fiscal assessment – Flexibility and performance: 6
• Fiscal assessment – Debt burden: 6
• Monetary assessment: 5

Outlook: Stable

The stable outlook balances our expectation of a continued economic recovery and the availability of a supportive foreign donor grant and loan facilities over the next 12 months, against the risk of higher global inflationary pressures (which could reduce the spending power of tourists) and elevated fiscal risks given Cape Verde's very high stock of general government debt.

Downside scenario

We could lower the ratings if fiscal outcomes substantially worsened relative to our current expectations. This could result, for example, if the tourism sector failed to sustainably recover over the forecast horizon through 2026. It could also be due to contingent liabilities stemming from SOEs or the private sector crystallizing on the government's balance sheet.

The ratings could also come under pressure if the Cape Verde escudo's (CVE's) longstanding peg to the euro came into question, particularly given that the majority of government debt is denominated in foreign currency and could thus rise substantially if the local currency depreciated. However, we view this as an unlikely scenario.

Cape Verde is currently in discussions with its bilateral creditor, Portugal, regarding relief on a portion of official debt. We would lower our ratings on Cape Verde if, beyond official debt (such as its debt to Portugal), commercial debt terms were adversely affected, but this is not our base-case scenario.

Upside scenario

We could raise the ratings if Cape Verde's balance-of-payment outcomes significantly strengthened and if budgetary performance improved, putting the government debt-to-GDP ratio on a faster downward path over the next two to three years.

(Latest research update published on Aug. 19, 2022)

Table 16

Cote d'Ivoire (BB-/Stable/B)

• Analyst: sebastien.boreux@spglobal.com
• Latest publication: Cote d'Ivoire 'BB-/B' Ratings Affirmed; Outlook Stable, May 19, 2023

Rating score snapshot:

• Institutional assessment: 4
• Economic assessment: 4
• External assessment: 4
• Fiscal assessment – Flexibility and performance: 4
• Fiscal assessment – Debt burden: 6
• Monetary assessment: 5

Outlook: Stable

The stable outlook on Cote d'Ivoire balances risks from the increase in funding costs, short-term spending constraints, and high external leverage, with robust economic prospects, strong donor support, and an expected decline in budgetary and external imbalances.

Downside scenario

We could lower the ratings in the next 12 months if budget deficits do not recede as we expect, or if a pronounced rise in sociopolitical tensions or security risks hinder economic stability.

Additionally, the ratings would come under pressure if external imbalances were to persist and external leverage did not decline as we currently expect.

Upside scenario

We could raise the ratings if Cote d'Ivoire's budgetary position strengthened more than we expect, especially if the improvements stemmed from increased government revenue. A bigger decline than we anticipate in both external imbalances and financing needs might also support a positive rating action.

Table 17

Democratic Republic of Congo (B-/Stable/B)

• Analyst: sebastien.boreux@spglobal.com
• Latest publication: Democratic Republic of Congo, Jan. 30, 2023

Rating score snapshot:

• Institutional assessment: 6
• Economic assessment: 6
• External assessment: 5
• Fiscal assessment – Flexibility and performance: 4
• Fiscal assessment – Debt burden: 1
• Monetary assessment: 6

Outlook: Stable

The stable outlook balances DRC's favorable economic prospects, the ongoing economic diversification, donor support, and moderating external imbalances against its very low income levels, high vulnerability to adverse commodity price swings given the reliance on the mining sector, and potential for a deterioration in the domestic political and security landscape over the next 12 months.

Downside scenario

We could lower the ratings on DRC if political stability were to deteriorate significantly, for example because of this year presidential election, or if the domestic security situation notably worsened. The ratings could also come under pressure in case of a protracted negative terms-of-trade shock, given the still-substantial reliance on the mining sector.

Upside scenario

We could upgrade DRC if the government implemented structural reforms, with economic and external performance strengthening beyond our projections and no escalation of domestic political stability and security risks.

(Latest research update published on Jan. 28, 2022)

Table 18

Congo-Brazzaville (CCC+/Stable/C)

• Analyst: adrienne.benassy@spglobal.com
• Latest publication: Congo-Brazzaville Affirmed At 'CCC+/C'; Outlook Stable, Jan. 27, 2023

Rating score snapshot:

• Institutional assessment: 6
• Economic assessment: 6
• External assessment: 6
• Fiscal assessment – Flexibility and performance: 3
• Fiscal assessment – Debt burden: 6
• Monetary assessment: 5

Outlook: Stable

The stable outlook reflects our view that Congo-Brazzaville's improving growth and liquidity conditions, thanks to higher oil receipts, are nevertheless counterbalanced by ongoing difficulties in securing fiscal financing.

Downside scenario

We could lower the ratings if there are indications that the government might include its commercial-debt obligations in any planned debt restructuring, or if renewed liquidity stress severely impairs the government's ability to service commercial debt obligations.

Upside scenario

We could raise the ratings if we perceived a lower probability of future commercial debt restructuring. This could be the case if, for example, the economic outlook strengthened beyond our current expectations or we saw an improving track record of the IMF program's implementation.

Table 19

Croatia (BBB+/Stable/A-2)

• Analyst: gabriel.forss@spglobal.com
• Latest publication: (Full Analysis) Croatia, March 20, 2023

Rating score snapshot:

• Institutional assessment: 4
• Economic assessment: 4
• External assessment: 2
• Fiscal assessment – Flexibility and performance: 2
• Fiscal assessment – Debt burden: 3
• Monetary assessment: 3

Outlook: Stable

The stable outlook reflects our expectation that Croatia's economic growth will remain steady over the coming two years, despite the elevated inflation and risks of further economic consequences of the Russia-Ukraine conflict. We expect the government will remain committed to its reform program, receive significant EU financing, and gradually rebuild the fiscal space it lost as a result of the pandemic.

Downside scenario

We could consider a downgrade if we observed significantly weaker fiscal positions and structurally weaker economic growth than we project. Such weakening could result if a prolonged Russia-Ukraine conflict led to increasingly severe economic consequences across Europe or if an abrupt halt to Europe's energy supply accentuated recessionary conditions across the continent. Net emigration trends and an aging population also represent a long-term risk to Croatia's growth and public finances.

Upside scenario

We could raise the ratings if Croatia's economic growth were stronger than our current forecasts, leading to a step-up in economic wealth. In this scenario, we would expect fiscal consolidation and net general government debt to decline beyond our current projections. Rating upside could also come from Croatia's deepening integration with Europe, if it were to facilitate institutional improvements, for example within the judiciary, education, and broader business environment.

(Latest research update published on July 14, 2022)

Table 20

Egypt (B/Negative/B)

• Analyst: trevor.cullinan@spglobal.com
• Latest publication: Egypt Outlook Revised To Negative On External Financing Risks; 'B/B' Ratings Affirmed, April 21, 2023

Rating score snapshot:

• Institutional assessment: 5
• Economic assessment: 5
• External assessment: 6
• Fiscal assessment – Flexibility and performance: 6
• Fiscal assessment – Debt burden: 6
• Monetary assessment: 4

Outlook: Negative

The negative outlook reflects risks that the policy measures implemented by the Egyptian authorities may be insufficient to stabilize the exchange rate and attract foreign currency inflows to meet the sovereign's high external financing needs.

Downside scenario

We could lower the ratings over the next 12 months if multilateral and bilateral funding support is more limited than expected.

We could also take a negative rating action if Egypt's external profile comes under greater strain than we expect and inflationary pressures persist such that risk of domestic unrest increases, among other potential repercussions.

Upside scenario

We could revise the outlook to stable if we observe a higher possibility of Egypt's foreign currency funding needs being met, for example, by a track record of exchange rate flexibility and attracting sizable foreign currency inflows via the sales of state-owned enterprises (SOEs)--key tenets of the IMF program.

Table 21

Ethiopia (CCC/ Negative/C)

• Analyst: giulia.filocca@spglobal.com
• Latest publication: (Full Analysis) Ethiopia, March 27, 2023

Rating score snapshot:

• Institutional assessment: 6
• Economic assessment: 6
• External assessment: 6
• Fiscal assessment – Flexibility and performance: 6
• Fiscal assessment – Debt burden: 5
• Monetary assessment: 6

Outlook: Negative

The negative outlook captures the risk that we could lower the ratings on Ethiopia over the next 12 months due to increasing uncertainty on the availability of government external funding and the potential inclusion of commercial creditors in the government's debt restructuring plans.

Downside scenario

We could lower the ratings if political tensions result in a sustained and material reduction in multilateral and bilateral financial support, further straining Ethiopia's external debt repayment capacity and already low foreign exchange (FX) reserves. These pressures could result in the country being unwilling or unable to service the interest payments on its commercial obligations, including the $33 million Eurobond coupon payment due Dec. 11, 2022.

We could also lower the ratings to 'SD' (selective default) should the government undertake a debt restructuring with commercial creditors, which we could consider a distressed debt exchange based on our criteria.

Upside scenario

We could revise the outlook to stable if the political situation stabilizes--for example, via a sustained ceasefire, allowing donor funding to resume and external pressures to subside--and it becomes clear that Ethiopia's commercial obligations will not be included in the upcoming debt restructuring agreement.

(Latest research update published on Sept. 23, 2022)

Table 22

Georgia (BB/Stable/ B)

• Analyst: amr.abdullah@spglobal.com
• Latest publication: (Full Analysis) Georgia, Feb. 13, 2023

Rating score snapshot:

• Institutional assessment: 4
• Economic assessment: 4
• External assessment: 4
• Fiscal assessment – Flexibility and performance: 4
• Fiscal assessment – Debt burden: 3
• Monetary assessment: 4

Outlook: Stable

The stable outlook balances Georgia's ongoing economic performance against its relatively weak external position on a stock basis and elevated regional security and geopolitical risks, which we expect will persist over the next 12 months.

Downside scenario

We could lower the ratings if the government deviated significantly from its projected fiscal consolidation path. Pressure on the ratings could also build if domestic political uncertainty and confrontation between the ruling party and opposition significantly escalated, with detrimental consequences for the reform agenda, investor sentiment, and the economic growth outlook.

Upside scenario

We could raise our ratings on Georgia over the next 12 months if its economic growth or fiscal performance proved significantly stronger than we project while balance of payments risks did not increase.

(Latest research update published on Aug. 26, 2022)

Table 23

Ghana (SD/SD)

• Analyst: frank.gill@spglobal.com
• Latest publication: Ghana FC Ratings Affirmed At 'SD' And LC Long-Term Rating At 'CCC+'; Two More Eurobonds Downgraded To 'D', June 2, 2023

Outlook

The stable outlook on the long-term local currency rating indicates that the Feb. 21, 2023, settlement of Ghana's domestic debt exchange program improved the government's refinancing profile and reduced its cost of debt. The conclusion of the settlement led us to consider the local currency default as cured, even though the government is still negotiating with hold-out groups of domestic creditors.

The 'SD' long-term foreign currency rating does not carry an outlook.

Downside scenario

We could lower the local currency ratings over the next 12 months if unexpected negative policy developments undermine Ghana's access to financing from the local market or official sources, or if there is a suspension of disbursements under Ghana's ECF program.

We could also lower these ratings if Ghana encounters setbacks in executing its ECF program and this hinders its access to other financing, such as that from other multilateral lending institutions (MLIs), or prevents the renegotiation of its Paris Club bilateral debt. Under this scenario, we could also see damage to investor confidence forcing the government to draw on central bank financing, despite the recent agreement. This would weigh on our long-term local currency rating.

Upside scenario

We could raise the long-term local currency rating over the next 12 months if Ghana demonstrated successful execution of the ECF program and its fiscal and debt profile also improved. We could also raise the rating if we saw a more pronounced economic recovery and the country's balance-of-payments performance strengthened. This would support stronger fiscal and external outcomes while reducing the government's financing needs, thus making its debt more sustainable.

Table 24

Hungary (BBB-/Negative/A-3)

• Analyst: niklas.steinert@spglobal.com
• Latest publication: Hungary Downgraded To 'BBB-/A-3' From 'BBB/A-2' On Inflation And External Pressures; Outlook Stable, Jan. 27, 2023

Rating score snapshot:

• Institutional assessment: 4
• Economic assessment: 3
• External assessment: 3
• Fiscal assessment – Flexibility and performance: 4
• Fiscal assessment – Debt burden: 4
• Monetary assessment: 4

Outlook: Negative

The stable outlook reflects our expectations that Hungary's economy will avoid a substantial economic downturn over the next two years and weather the indirect effects of the Russia-Ukraine war, despite challenges to fiscal and monetary policy flexibility. We also expect the government to gradually reduce fiscal deficits over the next few years. Our forecast embeds our baseline assumption that Russian gas inflows will continue generally uninterrupted and that EU funds available under the 2021-2027 Multiannual Financial Framework (MFF) and the Recovery and Resilience Facility (RRF) will not be cut significantly, but only delayed.

Downside scenario

We could lower the ratings if, against our current expectations, the EU significantly cuts funds or Hungary's energy supply is constrained, given its still-high import dependence on Russia. Either outcome could weaken Hungary's economic growth prospects and may result in the government deviating from its current fiscal consolidation strategy by extending additional support measures to the economy. In such a scenario, we would expect external pressures to reemerge with fallout effects on the forint's exchange rate and inflation, further constraining the Hungarian National Bank (MNB)'s monetary policy flexibility.

Upside scenario

We could raise the ratings if Hungary's twin deficits reduce more quickly than we currently expect, or the economy posts a stronger and earlier recovery. This would be the case if external pressures remain manageable over the next two years, including on Hungary's energy imports. Fiscal deficits could decrease on the back of successful consolidation efforts and despite rising interest costs. This would put general government debt, net of liquid government assets, on an even steeper downward path than we currently expect, particularly should growth outcomes exceed our baseline projections.

Table 25

Iraq (B-/Stable/B)

• Analyst: maximillian.mcgraw@spglobal.com
• Latest publication: Iraq Ratings Affirmed At 'B-/B'; Outlook Stable, Feb. 10, 2023

Rating score snapshot:

• Institutional assessment: 6
• Economic assessment: 6
• External assessment: 3
• Fiscal assessment – Flexibility and performance: 6
• Fiscal assessment – Debt burden: 4
• Monetary assessment: 6

Outlook: Stable

The stable outlook reflects our view that Iraq's foreign exchange reserves will continue to comfortably exceed debt-servicing obligations over the next 12 months. This largely offsets significant risks from the country's political uncertainty, weak institutional framework, and lack of economic diversification.

Upside scenario

We could upgrade Iraq if higher-than-expected GDP growth, for instance from reinvigorated reconstruction efforts, boosted the country's real growth and GDP per capita, and supported fiscal and external metrics. Institutional reforms and a more stable security environment could also improve our opinion of the government's debt-servicing capacity.

Downside scenario

Iraq's political landscape and external security backdrop remain unpredictable. We could consider a downgrade if we perceived that weaknesses in the sovereign's institutional framework had reduced the government's ability or willingness to service debt. We could also lower the ratings if pressure on the fiscal or external positions increased, for instance from a sharp and prolonged decline in oil prices or production.

Table 26

Israel (AA-/Stable/A-1+)

• Analyst: maxim.rybnikov@spglobal.com
• Latest Publication: Israel Ratings Affirmed At 'AA-/A-1+'; Outlook Stable, May 12, 2023

Rating score snapshot:

• Institutional assessment: 4
• Economic assessment: 1
• External assessment: 1
• Fiscal assessment – Flexibility and performance: 2
• Fiscal assessment – Debt burden: 3
• Monetary assessment: 2

Outlook: Stable

The stable outlook balances elevated regional and domestic political risks against the country's resilient economy, strong balance of payments, and moderate level of public debt.

Downside scenario

We could lower the ratings if regional or domestic political risks escalated sharply, depressing Israel's economic, fiscal, and balance-of-payments metrics.

Upside scenario

We could raise the ratings if we saw a significant reduction in regional and domestic political and security risks.

Table 27

Jordan (B+/Stable/B)

• Analyst: samuel.tilleray@spglobal.com
• Latest publication: (Full Analysis) Jordan, March 13, 2023

Rating score snapshot:

• Institutional assessment: 4
• Economic assessment: 6
• External assessment: 6
• Fiscal assessment – Flexibility and performance: 3
• Fiscal assessment – Debt burden: 6
• Monetary assessment: 4

Outlook: Stable

The stable outlook reflects that we expect Jordan's reform momentum and donor support will remain strong over the next 12 months, offsetting the risk that external headwinds could undermine its fiscal trajectory thereby pushing the already-elevated debt burden even higher.

Downside scenario

We could lower the ratings if reform momentum stalled, reversing progress in closing fiscal imbalances; for instance, because of rising domestic spending pressures or higher-than-expected transmission of global food and energy prices to the domestic economy. Downward ratings pressure could also build if the currently strong bilateral and multilateral donor support were to unexpectedly diminish.

Upside scenario

We could raise the ratings if Jordan's economic growth significantly improved while fiscal performance turned out stronger than we expect, resulting in debt following a firm downward trajectory

(Latest research update published on March 11, 2022)

Table 28

Kazakhstan (BBB-/Stable/A-3)

• Analyst: trevor.cullinan@spglobal.com
• Latest publication: Kazakhstan Outlook Revised To Stable From Negative On Manageable External Risks; 'BBB-/A-3' Ratings Affirmed, March 3, 2023

Rating score snapshot:

• Institutional assessment: 5
• Economic assessment: 4
• External assessment: 2
• Fiscal assessment – Flexibility and performance: 2
• Fiscal assessment – Debt burden: 2
• Monetary assessment: 4

Outlook: Stable

The stable outlook reflects our view that Kazakhstan's government and external balance sheets will remain strong, providing sufficient buffers to absorb temporary disruptions to the Caspian Pipeline Consortium (CPC) pipeline.

Downside scenario

We could lower the ratings if Kazakhstan's oil exports declined significantly for a prolonged period, weakening the economy's external position and increasing fiscal deficits. This could be the case, for instance, if the CPC pipeline were incapacitated for an extended period. We could also lower the ratings if rising borrowing costs continued to increase the government's debt-servicing burden. Other disruptions, such as deteriorating domestic stability with severe civil unrest, could also lead to a downgrade.

Upside scenario

We could raise the ratings if the medium-term fiscal trajectory improves more than we expect, reducing the pace of debt accumulation and debt-servicing requirements; and monetary policy effectiveness improves, as shown by more modest inflation, continued commitment to exchange rate flexibility, and a less dollarized economy.

Table 29

Kenya (B/Negative/B)

• Analyst: giulia.filocca@spglobal.com
• Latest publication: Kenya Outlook Revised To Negative From Stable On Weakening Liquidity Position; 'B/B' Ratings Affirmed, Feb. 24, 2023

Rating score snapshot:

• Institutional assessment: 4
• Economic assessment: 4
• External assessment: 6
• Fiscal assessment – Flexibility and performance: 6
• Fiscal assessment – Debt burden: 6
• Monetary assessment: 4

Outlook: Negative

The negative outlook reflects heightened risks to Kenya's debt servicing capacity due to constrained international market access and recent undersubscribed domestic bond issuances.

Downside scenario

We could lower the ratings over the next 12 months if Kenya's access to external funding were curtailed, resulting in external financing shortfalls or a sustained decline in foreign exchange (FX) reserves. We could also lower the ratings if we perceived Kenya's economic growth prospects or fiscal metrics had weakened significantly relative to historical norms.

Upside scenario

We could revise the outlook to stable if Kenya's external and domestic financing pressures prove to be contained with evidence of commitment to fiscal consolidation, while economic growth and institutional mechanisms remain robust.

Table 30

Kuwait (A+/Stable /A-1)

• Analyst: ravi.bhatia@spglobal.com
• Latest publication: (Full Analysis) Kuwait, June 12, 2023

Rating score snapshot:

• Institutional assessment: 4
• Economic assessment: 3
• External assessment: 1
• Fiscal assessment – Flexibility and performance: 1
• Fiscal assessment – Debt burden: 1
• Monetary assessment: 4

Outlook: Stable

The stable outlook primarily reflects the broadly favorable global oil price and production prospects for the next two years, set against Kuwait's lack of fiscal financing mechanisms. The outlook also reflects our expectation that Kuwait will likely implement additional fiscal financing mechanisms, over and above withdrawals from the government's treasury savings buffer, the GRF. This could include unblocking longstanding constraints on borrowing by introducing the long-planned new debt law, which would allow a wider range of financing options when fiscal deficits re-emerge in future.

Downside scenario

We could lower the rating if no sustainable comprehensive financing arrangements are agreed over the next two-to-three years. This could happen, for instance, because of ongoing tensions between the government and parliament, rendering the government unable to implement fiscal reforms, pass the debt law, or authorize other necessary budgetary financing mechanisms.

Upside scenario

We could raise the rating if the government successfully implements a comprehensive structural reform package aimed at improving fiscal financing mechanisms, diversifying the economy, and reducing the non-oil deficit, against a backdrop of supportive GDP growth dynamics.

(Latest research update published on July 15, 2022)

Table 31

Lebanon (SD/SD)

• Analyst: maximillian.mcgraw@spglobal.com
• Latest publication: (Full Analysis) Lebanon, Feb. 20, 2023

Rating score snapshot:

• Institutional assessment: 6
• Economic assessment: 6
• External assessment: 6
• Fiscal assessment – Flexibility and performance: 6
• Fiscal assessment – Debt burden: 6
• Monetary assessment: 6

Outlook

Foreign currency rating: The Lebanese government defaulted on its foreign currency debt obligations in March 2020. Our foreign currency rating on Lebanon is 'SD' (selective default). We do not assign outlooks to 'SD' or 'D' (default) ratings because they express a condition and not a forward-looking opinion of default probability.

Local currency rating: The negative outlook on the 'CC' long-term local currency rating reflects our view that the government will likely decide to restructure its local currency debt as part of a broader restructuring program.

Downside scenario

Local currency rating: We could lower the local currency rating to 'SD' if the government signals that it will restructure local currency debt.

Upside scenario

Local currency rating: We could revise the outlook to stable or raise the local currency rating if we perceive that the likelihood of a distressed exchange of Lebanon's local currency commercial debt has decreased. This could occur if, for example, the government decides a foreign currency restructuring is sufficient to place government debt stock on a sustainable path.

Foreign currency rating: We would raise our long-term foreign currency rating from 'SD' upon completion of the government's bond restructuring. The rating would reflect Lebanon's post-restructuring creditworthiness, considering the resulting debt burden and macroeconomic policy prospects. Our post-restructuring ratings tend to be in the 'CCC' or low 'B' categories, depending on the sovereign's new debt structure and capacity to support that debt.

(Latest research update published on Aug. 19, 2022)

Table 32

Madagascar (B-/Stable/B)

• Analyst: sebastien.boreux@spglobal.com
• Latest publication: Madagascar 'B-/B' Ratings Affirmed; Outlook Stable, April 7, 2023

Rating score snapshot:

• Institutional assessment: 5
• Economic assessment: 6
• External assessment: 5
• Fiscal assessment – Flexibility and performance: 6
• Fiscal assessment – Debt burden: 3
• Monetary assessment: 4

Outlook: Stable

The stable outlook balances relatively strong economic growth prospects, ongoing support from international donors, and structural reform implementation against still high budgetary and external imbalances and important vulnerabilities to climate-related disasters, such as drought, flooding, and cyclones.

Upside scenario

We could raise the ratings if the country's external position improves, for example due to rising export activity resulting from the implementation of the Plan Emergence Madagascar (PEM), and notably from investment in transport infrastructure, energy, and improving the business environment (which could boost output in export-oriented sectors).

We could also raise our rating on Madagascar in case of faster budgetary consolidation than we currently expect, notably supported by meaningfully higher government revenue.

Downside scenario

We could lower the ratings if the budgetary position deteriorates, including due to a crystallization of contingent liabilities on the government balance sheet. In addition, although this is not our base case, a significant deterioration in the country's political stability could threaten its ability to service its debt and thereby constrain our assessment of the sovereign's creditworthiness.

Table 33

Montenegro (B/Stable/B)

• Analyst: gariel.fross@spglobal.com
• Latest publication: (Full Analysis) Montenegro, March 6, 2023

Rating score snapshot:

• Institutional assessment: 4
• Economic assessment: 4
• External assessment: 6
• Fiscal assessment – Flexibility and performance: 4
• Fiscal assessment – Debt burden: 6
• Monetary assessment: 6

Outlook: Stable

The stable outlook reflects our expectation that Montenegro's economic growth will continue to be supported by tourism exports, which have held up in the face of the Russia-Ukraine conflict. We expect fiscal deficits and balance-of-payment risks to remain manageable and the economy's external financing channels to remain open with any residual financing needs met by domestic banks or international financial institutions.

Downside scenario

We could lower the rating if Montenegro's economic growth proved materially weaker than we forecast or if the government's access to financing became significantly curtailed. Pressure could also emerge if the budgetary deficit widens substantially from our forecast. This could, for example, occur if the government were unable to control spending over the next two to three years, execution of key fiscal reforms resulted in wider budgetary imbalances, or authorities undertook large debt-financed projects.

Upside scenario

We could raise our rating on Montenegro in case faster-than-expected budgetary consolidation, alongside a broadening of its economic base, strengthened its resilience to external shocks. In this scenario, net government debt as a share of GDP could decline below 60% of GDP, supported by recurring primary surpluses. Alternatively, earlier and more rapid progress on EU accession might benefit our institutional assessment, by providing a policy anchor for Montenegro's small economy.

(Latest research update published on Sept. 2, 2022)

Table 34

Morocco (BB+/Stable/B)

• Analyst: remy.carasse@spglobal.com
• Latest publication: Morocco 'BB+/B' Ratings Affirmed; Outlook Stable, March 31, 2023

Rating score snapshot:

• Institutional assessment: 4
• Economic assessment: 5
• External assessment: 2
• Fiscal assessment – Flexibility and performance: 4
• Fiscal assessment – Debt burden: 4
• Monetary assessment: 3

Outlook: Stable

The stable outlook on Morocco reflects our expectation that ongoing structural reforms will support robust economic growth and help counterbalance external and budgetary pressures.

Downside scenario

We could lower our ratings on Morocco if, contrary to our forecasts, economic and external imbalances widen and create a pronounced increase in Morocco's gross financing needs, or if the government's budgetary performance materially underperforms our expectations.

Upside scenario

We could raise our ratings on Morocco if budgetary consolidation proves to be significantly faster than we expect, resulting in a substantial decline in net general government debt to GDP, while economic growth remains robust.

Table 35

Mozambique (CCC+/Stable/C)

• Analyst: leon.bezuidenhout@spglobal.com
• Latest publication: Mozambique LC Ratings Raised To 'CCC+/C' On Resumption Of Debt Repayments; 'CCC+/C' FC Ratings Affirmed; Outlooks Stable, June 21, 2023

Rating score snapshot:

• Institutional assessment: 6
• Economic assessment: 6
• External assessment: 6
• Fiscal assessment – Flexibility and performance: 6
• Fiscal assessment – Debt burden: 6
• Monetary assessment: 5

Outlook: Stable

The stable outlook reflects the balance between our view of Mozambique's ability to meet its financial obligations in the next 12 months and uncertainties as to when significant LNG production will commence and the associated revenue will become available to the government. Significant delays in this regard could undermine the government's ability to meet its commercial obligations over the medium term (particularly its 2031 Eurobond).

Downside scenario

We could lower the ratings over the next 12 months if we assess that additional economic or external shocks, or further delays to the large gas projects, are likely to make the government less willing or able to service its commercial debt obligations in a timely manner.

Upside scenario

We could raise the ratings if we were to expect government revenue to increase materially, perhaps due to a sharp rise in gas production, reducing the risk of further delayed payments to creditors or of a distressed restructuring of Mozambique's 2031 Eurobond.

Table 36

Nigeria (B-/Negative/B)

• Analyst: ravi.bhatia@spglobal.com
• Latest publication: Nigeria Outlook Revised To Negative From Stable On Weakening Fiscal And External Metrics; 'B-/B' Ratings Affirmed, Feb. 3, 2023

Rating score snapshot:

• Institutional assessment: 5
• Economic assessment: 6
• External assessment: 6
• Fiscal assessment – Flexibility and performance: 6
• Fiscal assessment – Debt burden: 5
• Monetary assessment: 5

Outlook: Negative

The negative outlook reflects increasing risks to Nigeria's debt servicing capacity over the next one-to-two years due to intensifying fiscal and external pressures.

Downside scenario

We could lower the ratings if risks to Nigeria's capacity to repay commercial obligations continue to worsen, either because of declining external liquidity or a reduction in fiscal flexibility. This could occur, for instance, if we see higher fiscal expenditure, higher debt servicing costs, or significantly reduced liquid foreign exchange reserve levels.

Upside scenario

We could revise the outlook to stable if Nigeria experiences significantly stronger economic performance than we expect, and external and domestic financing pressures prove to be contained, while fiscal deficits decrease faster than we project.

Table 37

North Macedonia (BB-/Stable/B)

• Analyst: amr.abdullah@spglobal.com
• Latest publication: (Full Analysis) North Macedonia, Jan. 30, 2023

Rating score snapshot:

• Institutional assessment: 5
• Economic assessment: 4
• External assessment: 3
• Fiscal assessment – Flexibility and performance: 4
• Fiscal assessment – Debt burden: 3
• Monetary assessment: 4

Outlook: Stable

The stable outlook reflects our view that multiple risks arising from the Russia-Ukraine conflict over the next year are offset by North Macedonia's proactive policymaking as well as its moderate government debt levels and contained interest costs. We project general government interest payments will amount to about 6% of government revenue over the next four years, which is comparatively modest in a global context.

Downside scenario

We could lower the ratings if North Macedonia's balance-of-payments performance proved weaker than we expect, leading to a higher depletion of international reserves and possibly presenting risks to financial stability. This scenario could entail the additional risk that domestic residents increasingly convert deposits from local into foreign currency, but this is not our baseline scenario. The ratings could also come under pressure if fiscal deficits worsened beyond our expectations in the medium term, leading to a protracted build-up of government leverage in contrast to our current projection of net general government debt stabilizing at close to 53% of GDP through 2026.

Upside scenario

We could raise the ratings if structural reform implementation strengthened North Macedonia's institutional settings while its fiscal performance improved, with net general government debt trending down, alongside robust GDP growth.

(Latest research update published on Aug. 19, 2022)

Table 38

Oman (BB/Positive/B)

• Analyst: maximillian.mcgraw@spglobal.com
• Latest publication: Oman Outlook Revised To Positive On Improving Fiscal Performance; 'BB/B' Ratings Affirmed, March 31, 2023

Rating score snapshot:

• Institutional assessment: 4
• Economic assessment: 5
• External assessment: 4
• Fiscal assessment – Flexibility and performance: 1
• Fiscal assessment – Debt burden: 3
• Monetary assessment: 4

Outlook: Positive

The positive outlook reflects our view that the government's fiscal and economic reform program could strengthen Oman's fiscal position beyond our current assumptions, adding a greater degree of resilience against the economy's structural susceptibility to adverse oil price shocks.

Upside scenario

We could raise the ratings over the next 12 months if ongoing reforms further strengthen Oman's fiscal position, due to a continued reduction in government net debt and interest costs or faster-than-expected deleveraging in the state-owned enterprise sector. A stronger economic growth trajectory could also contribute to an upgrade.

Downside scenario

We could revise the outlook to stable over the next 12 months if fiscal reform implementation slows, or if we were to expect a sustained period of less favorable terms of trade to result in larger fiscal deficits or a worse external position than we currently anticipate.

Table 39

Poland (A-/Stable/A-2)

• Analyst: karen.vartapetov@spglobal.com
• Latest publication: Poland 'A-/A-2' Foreign Currency Ratings Affirmed; Outlook Stable, Feb. 17, 2023

Rating score snapshot:

• Institutional assessment: 4
• Economic assessment: 3
• External assessment: 2
• Fiscal assessment – Flexibility and performance: 4
• Fiscal assessment – Debt burden: 2
• Monetary assessment: 2

Outlook: Stable

The stable outlook reflects the balance between macroeconomic risks stemming from the Russia-Ukraine war and the buffers provided by Poland's strong external and government balance sheets.

Downside scenario

The ratings could come under pressure if the ramifications of the conflict in Ukraine intensified and lasted longer than we expect, resulting in much weaker medium-term growth prospects. Ratings downside could also materialize in the event of a pronounced and protracted reduction in EU transfers to Poland, for example because of continuous political tensions between Poland and EU authorities.

Upside scenario

We could raise the ratings if, once the effects of the Russia-Ukraine conflict subside, Poland resumed its strong economic performance, and the government's fiscal performance proved stronger than we project.

Table 40

Qatar (AA/Stable/A-1+)

• Analyst: trevor.cullinan@spglobal.com
• Latest publication: (Full Analysis) Qatar, May 8, 2023

Rating score snapshot:

• Institutional assessment: 4
• Economic assessment: 1
• External assessment: 3
• Fiscal assessment – Flexibility and performance: 1
• Fiscal assessment – Debt burden: 1
• Monetary assessment: 4

Outlook: Stable

The stable outlook reflects our view that Qatar's fiscal and external buffers should continue to benefit from the country's status as one of the world's largest exporters of LNG over the next two years, further boosted once production increases in relation to the NFE over 2025-2027.

Downside scenario

We could lower the ratings should Qatar experience a significant external shock, perhaps due to a material worsening of its terms of trade, which, among other things, could reduce our estimate of government liquid assets to below 100% of GDP.

Upside scenario

We could consider raising the ratings if risks related to Qatar's external position reduced, including a decline in the country's external funding needs, alongside a significant improvement in data transparency, for example, via the provision of full international investment position data, including information on the government's external assets.

(Latest research update published on Nov. 4, 2022)

Table 41

Ras al Khaimah (A-/Stable/A-2)

• Analyst: juili.pargaonkar@spglobal.com
• Latest publication: (Full Analysis) Emirate of Ras Al Khaimah, April 17, 2023

Rating score snapshot:

• Institutional assessment: 4
• Economic assessment: 3
• External assessment: 2
• Fiscal assessment – Flexibility and performance: 1
• Fiscal assessment – Debt burden: 1
• Monetary assessment: 5

Outlook: Stable

The stable outlook reflects our expectation that RAK's government will maintain its prudent fiscal stance and that GDP growth will average 2.7% in next two to three years.

Downside scenario

We could lower the ratings over the next two years if the government's strong fiscal position deteriorates, for example, if weaker-than-expected economic activity leads to persistent budgetary deficits and an accumulation of government debt. We could also lower the ratings if debt-service costs significantly increase.

Upside scenario

Although unlikely over the next two years, we could raise the ratings if RAK's economic prospects materially strengthen.

(Latest research update published on Oct. 14, 2022)

Table 42

Romania (BBB-/Stable/A-3)

• Analyst: niklas.steinert@spglobal.com
• Latest publication: Romania 'BBB-/A-3' Ratings Affirmed; Outlook Stable, April 14, 2023

Rating score snapshot:

• Institutional assessment: 4
• Economic assessment: 4
• External assessment: 3
• Fiscal assessment – Flexibility and performance: 4
• Fiscal assessment – Debt burden: 3
• Monetary assessment: 3

Outlook: Stable

The stable outlook balances our view on near-term economic risks for Romania and the country's high twin deficits against the buffers provided by its still-modest stock of external and government debt and incoming EU transfers. We anticipate that commitments under the EU's Recovery and Resilience Facility (RRF) will continue to anchor authorities' commitment to political reforms and fiscal consolidation.

Downside scenario

We could lower the rating over the next two years if the government's medium-term fiscal consolidation efforts prove insufficient and fail to sustainably reduce deficits, or if the government's financing costs increase beyond our expectations.

Upside scenario

We could raise the rating if we see evidence that Romania can sustain strong economic performance, supporting higher wealth levels, while the current account deficit (CAD) and government's fiscal deficit narrow, indicating the economy's strengthening productive capacity.

Table 43

Rwanda (B+/Stable/B)

• Analyst: leon.bezuidenhout@spglobal.com
• Latest publication: Rwanda Outlook To Stable From Negative On Growth Rebound And Easing Fiscal Pressure; 'B+/B' Ratings Affirmed, Jan. 27, 2023

Rating score snapshot:

• Institutional assessment: 4
• Economic assessment: 5
• External assessment: 5
• Fiscal assessment – Flexibility and performance: 6
• Fiscal assessment – Debt burden: 4
• Monetary assessment: 4

Outlook: Stable

The stable outlook balances the risks posed by high inflation, global headwinds, and regional tensions, against the reduction in fiscal and external risks due to favorable domestic growth, improving public debt metrics, and continued access to low-cost, concessional financing.

Downside scenario

We may lower the rating over the next 12 months if government debt rises significantly above our current expectations and available concessional financing is insufficient to cover it.

We could also lower the rating if Rwanda's economic growth moderates, its policy options weaken, or regional tensions escalate to a degree that would disrupt growth and weaken fiscal and external metrics.

Upside scenario

We could raise our rating on Rwanda if fiscal and external debt metrics improve significantly more than we expect, underpinned by robust and sustainable economic growth combined with lower inflation.

Table 44

Saudi Arabia (A/Stable/A-1)

• Analyst: ravi.bhatia@spglobal.com
• Latest publication: Saudi Arabia Upgraded To 'A/A-1' On Significant Reform Momentum And Economic Growth Prospects; Outlook Stable, March 17, 2023

Rating score snapshot:

• Institutional assessment: 4
• Economic assessment: 3
• External assessment: 1
• Fiscal assessment – Flexibility and performance: 1
• Fiscal assessment – Debt burden: 1
• Monetary assessment: 4

Outlook: Stable

The stable outlook balances our expectation that the government's reform plans will support the development of the non-oil sector against the cyclicality of a still-hydrocarbon-focused economy, with fiscal and societal pressures tied to rapid population growth.

Downside scenario

We could lower the ratings if per capita GDP growth falls sharply on a prolonged basis, or if we observe significant fiscal weakening or an erosion of the government's net asset position beyond our expectations. An enduring rise in domestic or regional instability could also weigh on the ratings.

Upside scenario

We could raise the ratings over the next two years if we observe further progress on institutional reforms, including effective checks and balances and pronounced improvements in data transparency on fiscal assets, alongside strong per capita economic growth and fiscal consolidation. Furthermore, measures to improve the effectiveness of monetary policy, such as the further development of domestic capital markets, could be positive for the ratings.

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Senegal (B+/Stable/B)

• Analyst: sebastien.boreux@spglobal.com
• Latest publication: Senegal 'B+/B' Ratings Affirmed; Outlook Stable, June 2, 2023

Rating score snapshot:

• Institutional assessment: 4
• Economic assessment: 4
• External assessment: 5
• Fiscal assessment – Flexibility and performance: 5
• Fiscal assessment – Debt burden: 5
• Monetary assessment: 5

Outlook: Stable

The stable outlook reflects the balance between risks stemming from Senegal's currently high fiscal and external imbalances and the country's strong medium-term economic prospects and expected narrowing of its twin deficits.

Downside scenario

Pressure on the rating could emerge if government and external deficits widen rather than narrow as we expect, and real GDP growth rates are significantly weaker than our forecasts.

Upside scenario

We could raise the ratings over the next 12 months should we expect external imbalances to decrease materially, perhaps due to sustained and broad-based export growth. The government's expansion of the tax base could also result in a more significant decline in net government borrowing and public debt relative to GDP, supported by strong economic growth over the medium term.

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Serbia (BB+/Stable /B)

• Analyst: amr.abdullah@spglobal.com
• Latest publication: (Full Analysis) Serbia, April 10, 2023

Rating score snapshot:

• Institutional assessment: 4
• Economic assessment: 4
• External assessment: 4
• Fiscal assessment – Flexibility and performance: 3
• Fiscal assessment – Debt burden: 2
• Monetary assessment: 4

Outlook: Stable

The stable outlook balances the indirect macroeconomic risks from the Russia-Ukraine conflict and economic slowdown of Serbia's key trading partners against Serbia's robust medium-term growth prospects and conservative fiscal management, which are supported by the country's credible policy framework.

Downside scenario

Should the Russia-Ukraine conflict and economic slowdown among key trading partners have a greater and more prolonged impact on Serbia than we anticipate, negatively affecting the country's medium-term growth outlook and hindering the government's fiscal consolidation plans (increasing public debt), we may consider lowering our ratings. Additionally, a significant deterioration in Serbia's foreign exchange reserve position because of prolonged balance-of-payments weakness could also serve as a downside trigger.

Upside scenario

If we determine that Serbia's growth prospects, external balances, and public finances improve, and that the macroeconomic effects of the Russia-Ukraine conflict and economic slowdown for Serbia's key trading partners remain contained, we may raise our ratings on the country. The easing of geopolitical uncertainty would also factor into our decision to upgrade the ratings.

(Latest research update published on Dec. 9, 2022)

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Sharjah (BBB-/Stable/A-3)

• Analyst: trevor.cullinan@spglobal.com
• Latest publication: Emirate of Sharjah, May 22, 2023

Rating score snapshot:

• Institutional assessment: 4
• Economic assessment: 3
• External assessment: 2
• Fiscal assessment – Flexibility and performance: 6
• Fiscal assessment – Debt burden: 5
• Monetary assessment: 5

Outlook: Stable

The stable outlook balances our view that the government will introduce sufficient measures to begin stabilizing its debt burden over the next two years against risks that implementation of the necessary expenditure controls and revenue-enhancing measures will be weaker than expected.

Downside scenario

We could lower the ratings over the next two years if the government's net debt burden rises sharply, resulting in further upward pressure on already-high government debt interest payments. The ratings could also come under pressure if additional contingent liabilities materialize on the government's balance sheet, inflating public sector leverage.

Upside scenario

We could raise our ratings if Sharjah's fiscal performance significantly strengthens, evidenced by a sustainable reduction in net government debt levels.

(Latest research update published on Jan. 24, 2023)

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St Helena (BBB-/Stable/A-3)

• Analyst: leon.bezuidenhout@spglobal.com
• Latest publication: St. Helena 'BBB-/A-3' Ratings Affirmed; Outlook Remains Stable, March 31, 2023

Rating score snapshot:

• Institutional assessment: 3
• Economic assessment: 5
• External assessment: 4
• Fiscal assessment – Flexibility and performance: 3
• Fiscal assessment – Debt burden: 1
• Monetary assessment: 5

Outlook: Stable

The stable outlook balances our expectations of continued strong financial support for St. Helena from the U.K. government over the next two years against the inherent structural risks stemming from the island economy's very small size and relatively high concentration.

Downside scenario

We could lower the ratings if St. Helena's fiscal metrics weaken, for example due to an unanticipated reduction in financial support from the U.K., while domestic tax revenue is insufficient to compensate for this.

Upside scenario

We could raise the ratings if St. Helena's economy becomes more diversified over time, supporting higher growth rates and per capita income levels.

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South Africa (BB-/Stable/B)

• Analyst: leon.bezuidenhout@spglobal.com
• Latest publication: (Full Analyses) South Africa, May 22, 2023

Rating score snapshot:

• Institutional assessment: 4
• Economic assessment: 5
• External assessment: 2
• Fiscal assessment – Flexibility and performance: 6
• Fiscal assessment – Debt burden: 6
• Monetary assessment: 2

Outlook: Stable

The stable outlook on both the foreign and local currency ratings balances South Africa's credit strengths--particularly a credible central bank, a flexible exchange rate, an actively traded currency, and deep capital markets--against infrastructure-related pressures on growth, and downside risks to the fiscal and debt position.

Downside scenario

We could lower the ratings over the next six-to-twelve months if the ongoing implementation of economic and governance reforms does not progress as planned, resulting in further deterioration in economic growth, or higher-than-expected fiscal financing needs. This could, for example, result from a deepening of the electricity crisis or if critical infrastructure constraints worsen.

Upside scenario

We could raise the ratings if there is an improving track record of effective reforms, resulting in structural improvements in economic growth alongside a reduction in public debt and contingent liabilities.

(Latest research update published on March 9, 2023)

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Tajikistan (B-/Stable/B)

• Analyst: giulia.filocca@spglobal.com
• Latest publication: Tajikistan 'B-/B' Ratings Affirmed; Outlook Stable, Feb. 17, 2023

Rating score snapshot:

• Institutional assessment: 5
• Economic assessment: 6
• External assessment: 5
• Fiscal assessment – Flexibility and performance: 6
• Fiscal assessment – Debt burden: 5
• Monetary assessment: 5

Outlook: Stable

The stable outlook reflects our expectation that Tajikistan's debt-service needs will remain moderate over the next 12 months, owing to the still-high component of concessional borrowing in the government's debt stock, which helps offset risks from its structurally volatile external position.

Downside scenario

We could lower the rating if Tajikistan's external debt levels increase sharply or geopolitical risks escalate, resulting in significant pressure on its exchange rate and foreign currency reserves. We could also lower the rating if Tajikistan's government debt-servicing capacity becomes strained, for example, because of reduced access to concessional funding.

Upside scenario

We could consider an upgrade if we see a sustained improvement in Tajikistan's fiscal and economic performance, evidenced by a sustained deceleration in the accumulation of government debt and materially higher income levels, as measured by GDP per capita.

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Togo (B/Stable/B)

• Analyst: remy.carasse@spglobal.com
• Latest publication: Togo 'B/B' Ratings Affirmed; Outlook Stable, March 17, 2023

Rating score snapshot:

• Institutional assessment: 5
• Economic assessment: 6
• External assessment: 6
• Fiscal assessment – Flexibility and performance: 4
• Fiscal assessment – Debt burden: 4
• Monetary assessment: 5

Outlook: Stable

The stable outlook on Togo, a member of WAEMU, reflects our expectation that the government's ongoing implementation of structural reforms will gradually improve the country's economic and fiscal performance and help counterbalance budgetary pressures.

Downside scenario

We could lower our sovereign credit ratings on Togo if institutional and security risks increase materially, or if access to regional and external financing deteriorates significantly, or if we see heightened pressure on WAEMU's international reserves and on the XOF to euro exchange rate.

Upside scenario

Ratings upside could arise if Togo's economic growth is significantly stronger than we forecast, and its external and budgetary deficits and net government debt as a share of GDP decrease materially.

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Turkiye (B/Negative/B)

• Analyst: SOVIPF@spglobal.com
• Latest publication: Turkiye Outlook Revised To Negative From Stable; 'B' Ratings Affirmed, March 31, 2023

Rating score snapshot:

• Institutional assessment: 5
• Economic assessment: 4
• External assessment: 6
• Fiscal assessment – Flexibility and performance: 5
• Fiscal assessment – Debt burden: 5
• Monetary assessment: 5

Outlook: Negative

The negative outlook reflects risks to Turkiye's creditworthiness from what we consider untenable monetary, financial, and economic policy settings. In our view, contingent liabilities from state banks and public enterprises are large and growing, while balance-of-payments and exchange-rate vulnerabilities remain elevated.

Downside scenario

We could lower the ratings if pressure on Turkiye's financial stability or wider public finances were to increase further, potentially in connection with renewed currency depreciation.

Upside scenario

We could raise the ratings if the predictability and effectiveness of monetary and financial sector policies improved while the sovereign's balance-of-payments position strengthened, particularly the Central Bank of the Republic of Turkiye's (CBRT's) net foreign currency reserves.

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Uganda (B/Negative/B)

• Analyst: leon.bezuidenhout@spglobal.com
• Latest publication: Uganda 'B/B' Ratings Affirmed; Outlook Remains Negative On Elevated Fiscal And External Vulnerabilities, June 2, 2023

Rating score snapshot:

• Institutional assessment: 5
• Economic assessment: 6
• External assessment: 6
• Fiscal assessment – Flexibility and performance: 6
• Fiscal assessment – Debt burden: 6
• Monetary assessment: 4

Outlook: Negative

The negative outlook reflects that large fiscal and external deficits will persist, increasing the sovereign's vulnerability to challenging domestic and external financing conditions, despite the IMF support program.

The outlook also reflects potential risks to policymaking and growth due to rising financing gaps, the recent Ebola outbreak, and the expected global economic slowdown in 2023.

Downside scenario

We could lower the ratings over the next six-to-12 months if economic recovery and fiscal consolidation does not materialize as we currently anticipate. This could result in larger fiscal gaps and less forthcoming concessional financing. This could further elevate the government's debt burden, increasing its dependence on more costly commercial sources. A further rise in the interest-to-revenue ratio and weaker external position could also pressure the ratings.

Upside scenario

We could revise the outlook to stable if a strong economic recovery or fiscal consolidation reduces the government's financing needs and debt to GDP starts decreasing. Increasing traction on reforms to materially increase tax receipts as a share of GDP would also contribute to the stability of public finances, and therefore the ratings.

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Ukraine (CCC+/Stable/C)

• Analyst: karen.vartapetov@spglobal.com
• Latest publication: (Full Analysis) Ukraine, March 13, 2023

Rating score snapshot:

• Institutional assessment: 5
• Economic assessment: 5
• External assessment: 6
• Fiscal assessment – Flexibility and performance: 6
• Fiscal assessment – Debt burden: 6
• Monetary assessment: 6

Outlook: Stable

The stable outlook balances our view of the reduction in Ukraine's government debt-service requirements and our expectation of steady international financial support against risks to Ukraine's economy, external balances, public finances, and financial stability stemming from the ongoing war.

Downside scenario

We could lower the ratings in the next 12 months should the security outlook deteriorate, putting further pressure on Ukraine's foreign exchange reserve position or the government's administrative capacity, or resulting in much higher government gross financing needs than we currently anticipate. Absent an escalation of the conflict, material delays in foreign donor support could also lead to a downgrade.

Upside scenario

We could raise the ratings if Ukraine's security environment and medium-term economic outlook significantly improve.

(Latest research update published on Aug. 19, 2022)

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Uzbekistan (BB-/Stable/B)

• Analyst: ravi.bhatia@spglobal.com
• Latest publication: (Full Analysis) Uzbekistan, June 5, 2023

Rating score snapshot:

• Institutional assessment: 5
• Economic assessment: 5
• External assessment: 3
• Fiscal assessment – Flexibility and performance: 5
• Fiscal assessment – Debt burden: 2
• Monetary assessment: 4

Outlook: Stable

The stable outlook reflects our expectation that Uzbekistan's comparatively strong fiscal and external stock positions should help its economy withstand any possible negative macroeconomic spillover effects from the Russia-Ukraine conflict and relatively weak global growth over the next 12 months.

Downside scenario

We could lower the ratings if Uzbekistan's fiscal and external positions weaken more than we currently expect. This could, for instance, result from negative fallout from the Russia-Ukraine conflict for Uzbekistan. It could also be the case if public and financial sector external debt rises sharply beyond our expectations. In addition, the ratings could come under pressure if the financial performance of key SOEs weakens significantly, leading to the transfer of contingent liabilities to the government's balance sheet.

Upside scenario

We could raise the ratings if Uzbekistan's economic reforms and increased integration with the global economy result in stronger economic growth potential and broader diversification of export receipts and increased fiscal revenue.

(Latest research update published on Dec. 2, 2022)

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Zambia (SD/SD)

• Analyst: maximillian.mcgraw@spglobal.com
• Latest publication: Zambia FC Ratings Affirmed At 'SD/SD' And LC Ratings At 'CCC+/C'; Outlook On Long-Term LC Rating Remains Stable, May 26, 2023

Rating score snapshot:

• Institutional assessment: 6
• Economic assessment: 6
• External assessment: 6
• Fiscal assessment – Flexibility and performance: 6
• Fiscal assessment – Debt burden: 6
• Monetary assessment: 5

Outlook

Local currency rating: The stable outlook on the local currency sovereign credit rating reflects the potential for Zambia's fiscal performance to prove stronger than we forecast over the next 12 months and some available liquid assets, including from the IMF's previous SDR allocation, to meet near-term financing requirements. This is balanced against the risks stemming from Zambia's very high overall stock of debt and the possibility that local currency debt could be included in a potential restructuring, even though this is not our baseline.

Foreign currency rating: Our long-term foreign currency rating on Zambia is 'SD'. We do not assign outlooks to 'SD' or 'D' (default) ratings because they express a condition and not a forward-looking opinion of default probability.

Downside scenario

Local currency rating: We could lower the local currency ratings within the next 12 months if it emerged that local currency debt was included in a broader debt restructuring program. We could also take this action if the government's liquidity position were to deteriorate, for instance, because of persistently wide fiscal deficits or reduced domestic market capacity to absorb additional government borrowing.

Upside scenario

Local currency rating: We could raise the local currency ratings if Zambia's growth outlook strengthened and fiscal imbalances moderated, while at the same time local currency debt was not included within the upcoming restructuring.

Foreign currency rating: We expect to raise our foreign currency ratings from 'SD' once Zambia's debt restructuring is complete. The subsequent foreign currency ratings would reflect Zambia's post-restructuring creditworthiness, considering the resulting debt burden and macroeconomic prospects.

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