Sub Saharan Africa to continue struggling with debt - Fitch

Sub-Saharan Africa is currently facing significant challenges when it comes to sovereign debt levels, as highlighted by Fitch Ratings. The median debt to GDP ratio is expected to reach 53.3% in 2017, indicating a concerning trend in the region. Jan Fredridge, the Senior Director and Head of Middle East and Africa Sovereigns at Fitch Ratings, discussed some of the key drivers behind this growing debt burden in a recent interview with CNBC Africa. One of the main factors contributing to the rise in debt levels is the commodities slump, which has put pressure on many African economies. The measures taken by some countries to address this issue have been varied, with a mix of short-term measures and more sustainable long-term strategies. While some countries have cut back on infrastructure investment, potentially reaching unsustainable levels, others have focused on reducing energy subsidies and liberalizing fuel prices, which are likely to have a more lasting impact. China's role in non-concessional lending to African countries has also been significant, particularly in the context of project financing. Despite some indications of a slowdown in Chinese lending, the overall trend is likely to continue, with China's GDP growth remaining strong. This ongoing support from China has implications for servicing debt in African countries, as it adds to the complex web of debt obligations in the region. The volatility of African currencies is another factor contributing to the challenges of debt servicing. Many countries in the region rely heavily on foreign currency borrowing, which exposes them to exchange rate fluctuations. The depreciation of currencies in recent years has led to a rise in debt levels relative to GDP, putting further strain on debt servicing capabilities. While some countries have attempted to stem currency depreciation, they have faced other challenges in the process. Eurobonds have become a popular financing option for African countries, with Ghana recently issuing a 750 million Eurobond to service existing debt. While refinancing debt with new Eurobonds is a common strategy, it raises concerns about increasing debt exposure and debt service ratios in the region. The growing reliance on commercial debt is a significant concern, particularly as it adds to the overall debt burden faced by many African countries. Fitch Ratings has highlighted certain countries as high-risk when it comes to debt distress. The Republic of Congo and Mozambique, in particular, have been singled out for their challenging credit situations. Both countries have faced significant pressures due to the decline in commodity prices and issues with public financial management, leading to increased risk of default. Mozambique's recent revelations of undeclared debt to the IMF and the challenges it faces in servicing commercial foreign currency debts are a stark reminder of the implications of unsustainable debt levels. The country may need to engage with creditors to explore potential debt exchanges or other mechanisms to address its debt servicing capacity. Overall, the growing debt challenges in Sub-Saharan Africa are a cause for concern, requiring a careful balance of short-term measures and sustainable strategies to manage debt levels effectively in the region.