African Countries Face Wall of Sovereign Debt Repayments

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Friday, February 14, 2020 / 12:16 PM / By FDC / Header Image Credit: African Voice Newspaper

 

Bond issuance has surged in recent years, creating unease. African governments have borrowed foreign currency debt at a record rate in the past few years, as investors flock to nations such as Egypt, Nigeria and South Africa in search of higher yields. Much of this debt falls due over the next decade, creating a "wall" of sovereign debt repayments, in the words of Gregory Smith, emerging markets strategist at M&G Investments.

 

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Some economists and strategists, including Mr Smith, think the scale of the repayment could prove overwhelming. "For Zambia or Gabon, making a $1bn payment is a pretty big deal," said John Ashbourne, senior emerging markets economist at Capital Economics. "If the repayment date comes up when a currency is doing badly or there's risk-off sentiment, they're pretty exposed." Still, there are reasons to remain confident that these countries will meet their obligations.

 

There is a growing number that have repaid their foreign bonds, M&G highlights, including South Africa, Morocco, Tunisia, Egypt, Gabon, Ghana, Kenya and Nigeria.

 

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South Africa led the way for such borrowing in 1995, but since the global financial crisis in 2008, issuance has surged from neighbouring nations. Twenty-one African countries now have outstanding sovereign eurobonds - foreign currency-denominated sovereign debt - totalling $115bn, according to M&G Investments, and this trend has accelerated since 2017.

 

The oil-rich west African nation of Gabon recently attracted institutional investors to a fourth international debt increase, priced at a yield of more than 6 per cent and maturing in 2031. The country has drafted an investment plan to diversify away from oil, hence the need for a capital injection.

 

Mr Ashbourne said countries had enjoyed good timing by issuing at a time of very low yields, but added there is "no telling" where rates will be when they come to refinance.


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