Food price shocks worsen nations’ debt

Food insecurity shocks are threatening to worsen critical debt woes in Sub-Saharan Africa, just as it is on the hook to repay record amounts of debt starting in 2023 to the end of 2025, according to Moody’s Investors Service.

Soaring global food prices, and other effects of the Covid-19 pandemic and Russia’s war on Ukraine, have ushered in one of the worst food crises in Africa in decades, with the UN estimating earlier in 2023 that more than 250-million on the continent were experiencing hunger.

“Food insecurity shocks will be a recurrent source of credit risk,” Moody’s Investors Service analyst Mickaël Gondrand said in a note to clients. “Our analysis finds Mozambique, Rwanda, Zambia and Ethiopia among the most exposed and vulnerable countries.”

Food shocks affect credit quality through various channels, Gondrand said, as a wider import bill adds to pressures on the current-account balance and forex reserves. Financing constraints then eventually lead to shortages, he said.

Sub-Saharan governments outside Nigeria and SA, the continent’s two largest economies, have external bond coupons totalling nearly $8bn due by the end of 2024, with another $5bn in principal payments coming due, according to data compiled by Bloomberg.

Bonds markets in Africa are already flashing warning signals, with the JPMorgan EMBIG Diversified Africa Sovereign Spread index crossing 1,000, the threshold widely considered to mark credits as “distressed,” in mid-March amid turmoil in the US and European banking systems. The spread was 963 on Tuesday.

Zambia, Rwanda and Mozambique’s dollar bonds have all weakened in 2023. Ethiopia, which has a $1bn principal payment due in December, has outperformed with a 15.9% return.