Major African economies can successfully restructure debt by 2024, says report

African countries that undergo managed debt treatments this year will be better placed to benefit from impact investment in coming years, says a new report from Pangea Risk. Charles Dietz reports.

Many debt-distressed

African countries will have successfully restructured their most unaffordable loans and be better placed to attract a new wave of sustainability capital through private investment by 2024, says a new report from special intelligence advisory Pangea Risk.

The report argues that debt transparency, sound fiscal and monetary governance, and candid bilateral relations with creditors are the primary political indicators of effective debt treatments, while multilateral debt relief initiatives, such as the G20’s Common Framework, fail African countries.

The authors predict that at least three major African sovereigns will successfully restructure their debt in

2023 in order to avoid a default scenario by 2024. “These are Ghana, Kenya, and Nigeria, which each in their own way are seeking a bespoke treatment of their obligations,” they write. Kenya and

Ghana are predicted to achieve successful debt restructurings through extended maturities on foreign currency obligations, domestic loan swaps in exchange for concessional finance, and limited haircuts for some bondholders.

In the case of Nigeria, an external restructuring is seen as improbable, but a domestic debt swap is said to be on the cards, despite concerns over its legality. “African sovereigns that undergo managed debt treatments this year in order to restore their borrowings to a sustainable path will be better placed to benefit from impact investment in coming years,” they say.

Returning to financial stability will be a positive development as Africa prepares to commit to a record amount of climate finance and other impact investments, which will be channelled through frameworks such as the United Nations Global Climate Fund (GCF), other climate investment funds and development finance institutions, says the report.

Policy prescription

But African countries must also strengthen the policy environment to ensure more private sector investment, “in particular sticky foreign direct investment (FDI) flows” warn the authors.

“For infrastructure projects that are not suitable for private investment, sovereigns with a credible investment programme that addresses environmental and social challenges will be best positioned to tap into an incremental pool of capital from sustainability and impact focused investors,” they add. The authors criticise the “oftenprohibitive

credit ratings imposed on many distressed sovereigns”.

These, they say, restrict “climate financing activities and other development funding in these countries”.

Mechanisms fail Africa

At the same time, multilateral debt treatment mechanisms such as the G20’s Common Framework have demonstrated “little worth in offering debt relief beyond the Paris Club [terms for relief set by wealthy lending countries] and should be reformed to address African countries’ more complex debt profiles”, they argue.

The report finds that debtdistressed African sovereigns that have successfully undergone a managed debt treatment coordinated by multiple stakeholders, such as Angola, will be in a better position to benefit from private sector investments, including from sustainability and impact-focused investors.