Borrowing to decline
According to a report released by S&P Global Ratings, the 17 sub-Saharan African countries which receive ratings are expected to borrow $43 billion in long-term debt this year. This borrowing amount is 19% lower when compared with 2016.
The primary reason that S&P is expecting a decline in long-term borrowing by these countries is because of the sharp depreciation in their currencies. Further, weakening economies is another reason S&P cites for the expected decline in borrowing. The report also looks at “historically large borrowers such as South Africa and Angola” which, the firm believes, will need to cut down on planned long-term debt issuance because of the aforesaid reasons.
Other borrowing-related projections
S&P estimates that a little less than half, or $20 billion, of the gross borrowing expected by it in 2017 will go towards refinancing debt that is maturing in the year. This means that net new borrowing is expected to be $23 billion for 2017. The size of the expected repayment component is projected to be the same as in 2016, but the percentage is up from 38% last year to 47% this year.
The reason this matters
Sub-Saharan African debt has been under scrutiny after Mozambique defaulted on its bond coupon. The African nation was supposed to make a payment of $59.8 million on January 18, 2017 on $727 million Eurobonds originally issued by the Mozambique Tuna Company (Ematum) and later backed by the government. This was the first default by an African country after Ivory Coast defaulted on its government bonds in February 2011.
The default did not surprise markets or multilateral agencies like the International Monetary Fund (IMF). After the default, the resident representative of the IMF, Ari Aisen, was reported saying that fiscal issues faced by the country had already been outlined by Minister of Economy and Finance Adriano Maleiane.
The question on the mind of the markets is which Sub-Saharan African country is next in line for defaulting on its debt obligations.
In the next article, let’s look into country level detail of the projections made by S&P Global Ratings.