African countries that have issued high volumes of debt in recent years must now brace themselves for a potential bout of distress in the face of adverse external conditions, leading experts have warned.
Six countries were considered to be in debt distress at the end of last year — Chad, Eritrea, Mozambique, Congo Republic, South Sudan and Zimbabwe, according to the IMF. Another 15 countries fall into the category of “high risk of debt distress”.
African countries issued a record $7.5bn of sovereign bonds in 2017, 10 times more than in the previous year. And they have issued or announced plans to issue more than $11bn in additional debt in the first half of 2018, according to the IMF.
“If you just take the first quarter of 2018, African countries have issued more Eurobonds than the total year of 2017,” said Albert Zeufack, chief Africa economist at the World Bank. “There are a number of new risks that our countries need to equip themselves against.”
The share of foreign currency debt has increased significantly, to 60%. “This is roughly a two fifths increase, compared from 2010,” said Zeufack.
“There are important risks emerging from the change in the composition of debt. Not only because of currency depreciation, but also because loans have evolved towards more non-concessional debt and non-traditional donors, more market-led debt,” he said.
Eric LeCompte, executive director of Jubilee USA Network, said African markets were now much more connected to the rest of the world than during the previous financial crisis.
“The types of debt that different countries have today did not even exist in Africa 10 years ago. Africa will not be insulated from the next crisis,” he said. “The poorest countries are already back in debt, and now we even see wealthier countries like Nigeria, Kenya which are dealing with serious debt issues.”
Zeufack said African countries should strengthen their capacity to negotiate better terms on their loans. “Some countries have actually gone to market quite aggressively to invest in infrastructure. What is clear is that they should have, and could still, negotiate better conditionality in these loans to finance infrastructure. The biggest issue is the cost of these funds, besides the debt to GDP ratio,” he told GlobalMarkets.
Meanwhile, a bank strategist has reported some improvements in African countries’ debt management capacity. “The quality of debt management in a number of African states has really improved. Everywhere you go you meet the young diaspora that have come home — people who’ve trained in London, Paris, and New York as bankers, who speak the language of the markets and investors,” said Christopher Marks, head of emerging markets EMEA for Mitsubishi UFG.
“Ministries of finance are being more proactive in softening the impact of maturity spikes.”