African countries at risk of debt distress

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By Southern Times Writer

Harare - The debt crisis in Africa is not a new occurrence as public debt has significantly affected economic growth in most African countries and to this date studies still show that the public debt situation is far from being resolved. 

According to a World Bank report titled Africa’s Pulse2019,nearly half of the International Development Association (IDA) countries in Sub-Saharan Africa assessed under the Debt Sustainability Framework for Low-Income Countries are at high risk of external debt distress or in debt distress.

The report revealed that the median government debt level in Africa is expected to ease slightly, from 54.4 percent of GDP in 2018 to 53 percent in 2019. However, vulnerability has elevated due to the change in the composition of the debt.

“The increase in debt levels together with the shift of public and publicly guaranteed external debt toward more market-based instruments and more expensive and riskier sources of financing have increased debt vulnerabilities substantially in the region.

“Median public debt levels in Sub-Saharan Africa had decreased from a peak median of more than 90 percent of gross domestic product (GDP) in the early 2000s to a median of 24 percent of GDP in 2012, owing to debt relief under the Heavily Indebted Poor Country and Multilateral Debt Relief initiatives.

“However, after 2013, public debt rose across the region. By 2018, median public debt in Sub-Saharan Africa reached about 53 percent of GDP, with slower debt increases over the past two years. The evolution of public and publicly guaranteed external debt mirrored that of total public debt in the region,” stated the report.

According to the report, some countries, including Guinea, Namibia, and Zambia, are expected to increase borrowing to finance public investments in 2019. Zambia is at high risk of debt distress, as expenditure overruns and currency depreciations have led to a rapid increase in public debt. Public and publicly guaranteed external debt has remained elevated. Most significantly, its composition has changed considerably, shifting from mainly concessional to market-based instruments such as bond issuances.

“In Sub-Saharan Africa, 2018 marked a record year for international bond issuances. Between 2013 and 2017, countries in the region (excluding upper middle-income countries) issued on average a total of US$4.5 billion per year, with an average issuance size of US$1billion. In 2018, bond issuances totalled more than US$17 billion, with the average issuance rising to nearly US$3 billion. In addition to the increase in issuance volumes, several countries (Côte d’Ivoire, Kenya, Nigeria) were able to extend maturitiesto 30 years,” concluded the report.

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