Risks around sovereign financing stress around sub-Saharan Africa (SSA) are on the rise, as the peak of maturing international debt approaches and countries contend with deteriorating credit quality, rising interest rates and an untested institutional capacity to take mitigating action, Moody’s Investors Service (MIS) said in a report published in November.
“The risk of financing stress among sub-Saharan African sovereigns will increase as we approach the peak of maturing international debt in the early 2020s,” said David Rogovic, Moody’s assistant vice president and analyst and the report’s co-author. “Several countries in the region already exhibit similar vulnerabilities to the emerging market debt crisis in the late 1990s.”
Some African sovereign issuers were able to borrow relatively cheaply, at longer maturities and in greater amounts relative to their domestic bond markets, as foreign investors were attracted to the region’s improving credit metrics, strong growth, and search for yield.
According to Moody’s, the peak in SSA bond issuance in 2014 coincided with a “deterioration in credit quality as the growth outlook for the region dimmed due to a combination of weaker Chinese growth and lower commodity prices.”
The global commodity shock also hit government revenue and export receipts and
contributed to a worsening of fiscal and current account positions, while currency depreciation increased the cost of servicing foreign-currency denominated debt.
These negative trends have been evident in rating actions, with SSA sovereign downgrades outnumbering upgrades 20 to 2 since the start of 2015.
While some sovereigns will manage difficulties rolling over debt, Moody’s expects problems to arise on a case-by-case basis. In addition to recent sovereign defaulters like Mozambique (Caa3 negative) and Republic of the Congo (Caa2 negative), existing credit weaknesses mean Gabon (B3 negative), Ghana (B3 stable), and Zambia (B3 negative) are most susceptible to the risk of financing stress given large Eurobond maturities falling due next decade.