[ad_1]
African countries face another debt crisis and will need longer-term help than the latest G20 plan offers them to head off problems and keep much-needed investments on the way, according to policy makers. analysts and investors.
About 40% of sub-Saharan African countries were at risk of debt suffering even before this year, while Zambia became the continent’s first pandemic-era default on Friday.
The United States, China, and other G20 countries have offered relief to the world’s poorest countries, many of which are in Africa, until at least mid-2021, and drafted the rules for rescheduling public debt to help push back the risk of default in the wake of the coronavirus crisis.
But these plans to provide short-term breathing space may not be enough.
“In 2021, robust liquidity and structural response, recovery and recovery toolboxes must be developed in collaboration between emerging markets, the private sector and the G20,” warned Vera Songwe, executive secretary at the Economic Commission for Africa of the United Nations.
Songwe is pushing for measures to unlock $ 500 billion to avoid leaving lasting scars due to protracted funding shortages in poorer economies.
Sub-Saharan African countries’ debt-to-GDP ratios had already increased dramatically before COVID-19, just over a decade after the International Monetary Fund and the World Bank launched the Highly Indebted Poor Countries (HIPC) Initiative. it had reduced the debt burden by about 30 units. income countries on the continent.
Fast forward to the year of the pandemic and sub-Saharan Africa is on track for a record 3% economic contraction this year, while the debt-to-GDP ratio has doubled over the past decade to 57%, the IMF found.
“We are definitely already in a debt crisis, there is no question about that,” said Bryan Carter, head of global emerging market debt at HSBC, referring to poor countries around the world.
“I worry about 2021. I worry about an agreement in which many countries will once again have to finance themselves in a slow or even recessive economic environment where a vaccine is not yet available globally. For many countries, this is one year too long to finance themselves. “
Cancellations, suspensions, lower financing costs
Some countries will need help with their debt stock, not just payments.
Politicians like the Prime Minister of Ethiopia and the Minister of Finance of Ghana, as well as campaign groups have pushed for full debt cancellation, in addition to widespread calls for a longer suspension of services and reimbursement for poorer countries of the continent.
Traders sit in front of their shop as Ghana lifts partial lockdown due to coronavirus spread in Accra [File: Francis Kokoroko/Reuters]
Others, such as UNECA and some private investors, have also suggested that the strength of development banks could be harnessed through loans and guarantees to reduce borrowing costs for countries most under pressure.
“There are certainly some countries, like Zambia and Angola or Ghana, that are in rather fragile places right now,” said Roberto Sifon-Arevalo, chief executive of the sovereign group of S&P Global Ratings, adding that the proposed plans did not address structural problems. “You need something much deeper and deeper and more holistic than this particular approach.”
African countries make up half of the 73 countries eligible for the G20 Debt Service Suspension Initiative (DSSI).
Much has changed since the HIPC initiative, when the money was mainly owed to rich countries and multilateral institutions. Now, a plethora of creditors makes the help more complicated.
China plays a key role: the government, banks and businesses lent Africa about $ 143 billion 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 owed in 2021 by ISD-eligible sub-Saharan African nations is owed to official Chinese creditors, while a further 10% is linked to the China Development Bank, he calculated. the Institute of International Finance.
China’s accession to the G20 framework was widely welcomed, although many criticized the lack of transparency in its lending.
“If you look at China, loans are mostly shrouded in secrecy,” said Nalucha Nganga Ziba, the country’s director of Zambia for the anti-poverty charity ActionAid.
A woman walks past a fashion boutique in the Piassa district of Addis Ababa, Ethiopia [File: Tiksa Negeri/Reuters]
Writing ahead of the G20 leaders’ meeting, IMF chief Kristalina Georgieva said the G20 framework, if “fully implemented”, could allow poorer nations to apply for permanent debt relief. He did not provide details. Some G20 members, such as China and Turkey, remain skeptical of actual debt cancellation.
In the meantime, shifting payments under the G20 agreement from the short to medium term could simply push the issue down the road.
For example, Scope Ratings calculates that Angola participating in the DSSI could increase its debt service requirements from 2022 to 2024 by more than 1% of GDP per year.
An increase in Eurobond payments following a gold mine in debt selling that saw African hard currency debt markets cross the $ 100 billion mark in 2019 could increase the pressure.
With dollar bond yields approaching double digits, governments like Angola, Ghana and Mozambique would struggle to exploit the markets right now.
In fact, no sub-Saharan African government has sold Eurobonds since Gabon and Ghana did so in February, before COVID-19 hit.
However, access to capital markets will be needed to refinance, but also to help fill an external funding gap that the IMF estimates at $ 410 billion over the next three years.
“The potential battle will really be between countries that want to grow and investors who say we need to talk about fiscal consolidation right away,” said Andrew Macfarlane, EM credit strategist at Bank of America.
.
[ad_2]
Source link
