LONDON, July 30 – A potential super El Niño is unlikely to trigger sovereign credit rating downgrades across Africa and other emerging markets unless governments’ fiscal responses significantly weaken public finances, according to S&P Global Ratings.
Speaking in an interview, Joydeep Mukherji, S&P Global’s lead sovereign ratings analyst for Latin America, said temporary economic disruptions caused by severe droughts, floods or other extreme weather events would not, by themselves, be sufficient to warrant lower sovereign ratings.
According to Mukherji, “If it’s a flooding or a drought that causes disruption in economic activity, you assume it’s going to pick up in six months, 12 months’ time. Ratings should be able to withstand that kind of stress, if that’s all that happens.”
Instead, he said the more important factor for sovereign creditworthiness is how governments respond to the economic fallout.
Limited fiscal support for affected households and businesses would be manageable, he noted, but broader interventions such as fuel or electricity price controls could place additional pressure on public finances.
“If there’s just a small fiscal response to help people who are affected, that’s one thing,” Mukherji said. “Then suddenly you have a fiscal problem on the side, not just the disruption caused by natural events,” he added, referring to the potential impact of larger government intervention.
He explained that policymakers face a choice between allowing part of the economic burden to be absorbed by households and businesses or transferring more of the cost to the public sector through increased spending, wider fiscal deficits and higher borrowing.
According to Mukherji, “Policy response is key here. Do governments spare or share the costs, or do they take a lot of it onto themselves into their balance sheet through higher deficits, higher debt?”
He also noted that countries with flexible exchange rate regimes may be better positioned to absorb weather-related economic shocks than those without independent currencies.
Mukherji cited Colombia and Peru as examples of countries where El Niño could have a significant economic impact but where exchange rate flexibility provides an additional policy buffer. By contrast, economies such as Ecuador, which uses the US dollar as its official currency, have fewer policy options to restore competitiveness following major external shocks.
While uncertainty remains over the eventual strength of the developing El Niño, S&P does not currently expect the weather phenomenon to trigger a broad wave of sovereign rating downgrades.
The comments come as governments and multilateral institutions intensify preparations for a potential super El Niño, which forecasters warn could bring severe droughts, flooding and extreme weather to parts of Africa, threatening agricultural production, infrastructure, food security and economic growth.
