ZAMBIA ONLY AFRICAN COUNTRY AT RISK OF DEBT DISTRESS - AFDB

ZAMBIA has been singled out as the only African country among the 21 States at high risk of debt distress whose sovereign debt spreads has trended upwards since the pause in global interest rate hikes in October 2023.

This is according to the African Development Bank (AfDB) in its Macroeconomic Performance and Outlook 2024 report released recently.

The multilateral bank has also projected that African countries are this year expected to spend around US$74 billion on debt service.

On sovereign debt spreads, AfDB stated that all other African countries had seen a narrowing of their sovereign spread, except for Zambia.

The Bank noted that the confluence of higher global interest rates, wider sovereign debt spreads, and exchange rate depreciations had created a funding squeeze for many African countries.

It indicated that the wave of interest rate hikes in advanced economies and ongoing exchange rate pressures had disproportionately affected African countries, raised borrowing costs, and blocked most African countries from accessing international capital markets.

“The average sovereign spreads in Africa have soared— to three times the emerging market average since the beginning of the tightening cycle in July. As a result, debt service costs have risen, and as of November 2023, 21. African countries were at high risk of debt distress or already in debt distress.

“At the country level, sovereign spreads mirror the continentwide average. Indeed, except for Zambia, where the spread has trended upward since the pause in global interest rate hikes in October 2023, all countries have seen a narrowing of their sovereign spread,” according to the AfDB.

Nigeria, which introduced fuel subsidy reforms and fiscal consolidation measures, saw its spread fall by 171 basis points, and South Africa’s fell 53 basis external debt as a percentage of government revenue for 50 countries with data rose from 6.8 percent over 2015–19 to 10.6 percent over 2020–22.

Meanwhile, the AfDB projected that African countries in 2024 were expected to spend around US$74 billion on debt service, up from US$17 billion in 2010.

Refinancing risks could further increase, especially for countries with large bullet redemptions, including Angola (US$6.4 billion in 2024), Kenya (US$5 billion in 2024), Côte d’Ivoire (US$2.6 billion in 2024), and Nigeria (US$2.5 billion in 2024).

It showed that some US$40 billion, or 54 percent of total debt service, was owed to private creditors.

The Bank further projected that private creditors in 2025 would account for more than 50 percent of total debt service payment coming due.

“The implication of the dominant share of private creditors for future debt service is that debt restructuring mechanisms under the G20 Common Framework for Debt Treatment should strive to bring private creditors onboard,” the AfDB stated.