Will Africa see more debt defaults in 2024?
Ethiopia’s failure to make a $33-million coupon payment makes the country join the likes of Zambia and Ghana on the growing list of African Eurobond defaults. Meanwhile, the World Bank says developing countries spent a record 443.5 billion dollars to service external public and publicly guaranteed debt in 2022 due to a surge in global interest rates. Egie Akpata, the Chairman of Skymark Group, joins CNBC Africa for this discussion.
Wed, 13 Dec 2023 14:25:03 GMT
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AI Generated Summary
- Ethiopia's failure to make a $33-million coupon payment adds to the list of African countries defaulting on Eurobonds, reflecting the challenges of foreign currency debts and low reserves.
- Egie Akpata highlights the lack of domestic savings in many African countries, leading to unsustainable foreign borrowing and the likelihood of increased defaults in 2024.
- Nigeria, despite market confidence in timely debt payments, faces the risk of default repercussions, emphasizing the importance of maintaining stability and honoring financial obligations.
Ethiopia's failure to make a $33-million coupon payment has added it to the list of African countries like Zambia and Ghana that have defaulted on Eurobonds. The World Bank reports that developing countries spent a record $443.5 billion to service external public and publicly guaranteed debt in 2022 due to a surge in global interest rates. Egie Akpata, Chairman of Skymark Group, shared insights on the potential implications of rising debt defaults for African nations in 2024, emphasizing the challenges faced by countries with large foreign currency debts and low reserves. He highlighted the issue of countries lacking domestic savings, leading them to borrow in foreign currency without sufficient means to repay. This unsustainable trend is expected to result in more defaults in the coming year. Nigeria, however, presents a different case, with most Nigerian Eurobonds rallying in price and indicating market confidence in timely debt payments. With Nigeria's total outstanding Eurobonds at $15 billion and annual interest at $1.2 billion, Akpata stressed the importance of avoiding defaults to maintain market stability and the ability to access international financing. He cautioned against the potential negative impact on local corporates and the overall financial system in the event of a default. Turning to the corporate bond and commercial paper markets, Akpata noted a slowdown in activity following a surge earlier in the year. While commercial papers offered competitive rates compared to treasury bills, recent increases in treasury bill returns have dampened interest in commercial papers. The bond market faced similar challenges, with high bond yields discouraging corporates from locking into long-term fixed rates. Strategies such as the federal government's decision to lower borrowing amounts to reduce rates reflected the cautious approach taken by market players. Overall, the African debt landscape poses complex challenges for countries, corporates, and investors, requiring careful navigation and prudent financial management to mitigate risks and ensure sustainability.
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