As another debt crisis looms, Africa needs more than the world offers

* G20 leaders meet this weekend, debt relief on the agenda

* China key lender in selected African countries

* Zambia becomes Africa’s first pandemic-era default country

* Sub-Saharan African Eurobond issuers see redemptions increase in 2024

LONDON/JOHANNESBURG, Nov 19 (Reuters) – African countries are facing a new debt crisis and will need longer-term help than the latest G20 debt plan offers to stave off future trouble. come and maintain the necessary investments, according to decision makers, analysts and investors.

About 40% of countries in sub-Saharan Africa were in debt distress or at risk of being so even before this year, while Zambia last Friday became the continent’s first pandemic-era defaulter.

The United States, China and other G20 countries have offered the world’s poorest countries – many of them in Africa – relief until at least mid-2021 and have outlined rules for rescheduling public debt to help ward off the risk of default following the coronavirus crisis.

But those plans to provide short-term respite might not go far enough.

“In 2021, a robust liquidity and structural response, recovery and reset toolkit must be developed in partnership between emerging markets, the private sector and the G20,” warned Vera Songwe, Executive Secretary of the Economic Commission. United Nations for Africa.

Songwe calls for action to release $500 billion to avoid leaving lasting scars from protracted financing shortfalls in poorer economies.

Sub-Saharan African countries’ debt ratios had already risen sharply before COVID-19, just over a decade after the International Monetary Fund and World Bank launched the Heavily Indebted Poor Countries Initiative (HIPC) which has reduced the debt burden of some thirty poor States. income countries of the continent.

Fast forward to the year of the pandemic and sub-Saharan Africa is on track for a record economic contraction of 3% this year, while debt-to-GDP ratios have doubled over the past decade to 57. %, found the IMF.

“We are definitely already in a debt crisis, there is no doubt about that,” said Bryan Carter, head of global emerging market debt at HSBC, referring to poor countries around the world.

“I’m worried about 2021. I’m worried about a deal in which many countries that will again have to finance themselves in a slow, even recessionary, economic environment where a vaccine is not yet available globally. For many countries, this is one year too long to finance themselves.

CANCELLATIONS, SUSPENSIONS, REDUCTION OF BORROWING COSTS

Some countries will need help with outstanding debt, not just payments.

Politicians such as Ethiopia’s prime minister and Ghana’s finance minister as well as campaign groups have pushed for outright debt cancellation, in addition to widespread calls for a longer suspension of service and repayment for the continent’s poorest countries.

Others, like the ECA and some private investors, have also suggested that the strength of development banks could be leveraged through loans and guarantees to reduce borrowing costs for countries most under pressure. .

“There are certainly countries, like Zambia and Angola or Ghana, that are in quite fragile situations right now,” said S&P Global Ratings’ sovereign group managing director Roberto Sifon-Arevalo, adding that the proposed plans did not address structural issues. “You need something much deeper, deeper and holistic than this particular approach.”

African countries represent half of the 73 countries eligible for the G20 Debt Service Suspension Initiative (DSSI).

A lot has changed since the HIPC Initiative when money was mainly owed to rich countries and multilateral institutions. Now, a plethora of creditors makes getting help more complicated.

China plays a key role: its government, banks and companies lent some $143 billion to Africa from 2000 to 2017, according to Johns Hopkins University.

“About 10 African countries have a debt problem with China,” said Eric Olander, co-founder of the China-Africa Project, adding that Chinese lending was concentrated in a small number of countries. “Djibouti, Ethiopia, Kenya, Angola, Zambia – they all have very serious debt problems.”

One-third of the $30.5 billion in public debt service payments due in 2021 from DSSI-eligible Sub-Saharan African countries are due to official Chinese creditors, while another 10% are debt-related. China Development Bank, calculated the Institute of International Finance.

China’s adherence to the G20 framework has been widely welcomed, although many have criticized the lack of transparency in its loans.

“If you look at China, loans are mostly shrouded in secrecy,” said Nalucha Nganga Ziba, Zambia country director for anti-poverty charity ActionAid.

But shifting payments under the G20 deal from the short to the medium term might just push the issue away. For example, Scope Ratings calculates that Angola’s participation in the DSSI could increase its debt service requirements from 2022 to 2024 by more than 1% of GDP per year.

A surge in Eurobond payouts following a windfall of debt selling that saw African hard-currency debt markets surpass the $100 billion mark in 2019 could add to the pressure.

With dollar bond yields close to double digits, governments like Angola, Ghana and Mozambique would struggle to tap the markets at the moment.

Indeed, no sub-Saharan African government sold Eurobonds from Gabon and Ghana in February, before COVID-19 hit.

Nonetheless, access to capital markets will be needed to refinance but also to help bridge an external financing gap that the IMF estimates at $410 billion over the next three years.

“The potential battle is really going to be between countries wanting to grow and investors saying we need to talk about fiscal consolidation right away,” said Andrew Macfarlane, EM credit strategist at BofA. (Reporting by Karin Strohecker in London and Joe Bavier in Johannesburg; Additional reporting by Tom Arnold in London; Editing by Hugh Lawson)

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