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* G20 leaders meet over the weekend, debt relief is on the agenda
* China’s key lender in some African countries
* Zambia becomes the first African default in the pandemic era
* Sub-Saharan Eurobond issuers see redemptions rise in 2024
LONDON / JOHANNESBURG, Nov. 19 (Reuters) – African countries face another debt crisis and will need more long-term help than the latest G20 debt plan offers them to head off future 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 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 have drafted the rules for rescheduling public debt to help fend off the default risk in the wake of the coronavirus crisis.
But these plans to provide short-term breathing space may not be enough.
“Strong liquidity and a set of structural response, recovery and recovery tools need to be developed in 2021 in collaboration between emerging markets, the private sector and the G20,” warned Vera Songwe, Executive Secretary of 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.
The debt-to-GDP ratios of sub-Saharan African countries 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 which it had reduced debt burdens by about 30 low-cost units. income countries on the continent.
Fast forward into 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, REDUCTION OF HIRING EXPENSES
Some countries will need help with their debt stock, not just payments.
Politicians such as 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 the poorest countries of the continent.
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.
But shifting payments under the G20 agreement from the short to the 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 sold Eurobonds from Gabon and Ghana 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 immediately,” 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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