African nations struggling to repay debts – report
African nations’ ability to repay foreign debt is shrinking due to falling commodity prices, a rising dollar and higher interest payments, a UN paper suggests.
The report, however, shows no negative development with Kenya, corroborating an International Monetary Fund report this week that Kenya was justified in expanding its fiscal deficit.
IMF revised down its 2016 growth forecast for Sub-Saharan Africa to 1.4 from three per cent in May, as many Sub Saharan Africa economies reel from the drop in commodity prices.
The “Assessing Recent Determinants of Borrowing Costs in Sub-Saharan Africa” paper will be released in November. It says, in part, that the latest round of borrowing among Sub-Sahara Africa nations goes back to 2006 when Seychelles issued a sovereign bond.
Since then, 13 other nations including Kenya, Angola, the Democratic Republic of Congo, Côte d’Ivoire, Ethiopia, Gabon, Ghana, Namibia, Nigeria, Rwanda, Senegal, Tanzania and Zambia, have accumulated more than $25 billion (Sh2.5 trillion) worth of bonds, with a principal amount of more than $35 billion (Sh3.5 trillion).
Since 2000, hedge funds have been the main plaintiff in 75 per cent of all litigation cases against sovereign debtors, according to the report.
“Sovereign nations do not have the protection of bankruptcy laws to restructure or delay their debt repayments in the same way that private debtors can,” UNCTAD secretary general Mukhisa Kituyi said on Wednesday.
The paper adds that lack of diversified economic structures and the resulting lack of real competitiveness on the international market are among the reasons most countries are running into debt repayment problems.
“But while creditors cannot easily seize non-commercial public assets, sovereign debt faults bring major problems in terms of reputation and access to further loans,” Kituyi said.
The IMF report shows African economic growth was more than five per cent in the decade leading up to the commodity price drop, but it is now being dragged lower by 23 resource-dependent nations like Nigeria, South Africa and Angola.