African countries need not fear default

Safe and sound: Finance Minister, Thapelo Matsheka has no fears of default as government credit worthiness remains robust
Safe and sound: Finance Minister, Thapelo Matsheka has no fears of default as government credit worthiness remains robust

Many developing countries carry crushing debt burdens, but are reluctant to pursue much-needed restructuring, for fear of losing access to capital markets. This fear is overblown, and its persistence is raising the risks for debtors and creditors alike. MORITZ KRAEMER* writes

FRANKFURT – Since the COVID-19 crisis began, the spectre of sovereign default has loomed over developing economies. Many sovereigns are so afraid of losing market access that they are unwilling to address debt-sustainability problems. Yet a clear-eyed look at the impact of the COVID-19 crisis, together with the fiscal and financing realities for low-income countries, reveals a “new normal,” in which a timely default is far from the worst-case scenario.

According to World Bank estimates, half of the world’s poorest countries are now in or at risk of debt distress. In Sub-Saharan Africa, for example, solvency metrics have deteriorated significantly this year, following six years of gradual weakening linked to declining global commodity prices. Angola, Ghana, and Nigeria spend close to half of their government revenues on interest payments. For the 19 Sub-Saharan African sovereigns that it rates, S&P Global Ratings estimates that two-thirds of all interest payments go to private creditors.

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