Figures come as IMF warns of potential rise in public debt to ‘unsustainable levels’
Mozambique's currency, the Meticals has surged in the past year
NOVEMBER 16, 2017 Steve Johnson, www.ft.com
The governments of major sub-Saharan African nations are more indebted than at any point since 2005, when the IMF and World Bank were writing off tens of billions of US dollars of debt under their heavily indebted poor countries initiative.
Worse still, the cost of servicing this debt has risen to an average of 12.2 per cent of government revenues, up from a low of 5.4 percent in 2011 and the highest figure since 2001, before the wave of debt forgiveness.
“The long-term forces that are driving up debt are not really under control,” said Jan Friederich, a senior director in the sovereigns and supranationals group at Fitch Ratings. “One of the fundamental issues is relatively weak public financial management in most sovereigns in the region.”
William Jackson, senior emerging market economist at Capital Economics, a consultancy, added:
“Generally finances in the emerging world have been improving over the last 15-20 years but sub-Saharan Africa is one region where debt levels have deteriorated. We have warned about the rise in debt across [the region].”
The figures come just weeks after Patrick Njoroge, governor of the central bank of Kenya, warned that a “secular increase” in African public debt has pushed several governments towards a debtservicing threshold beyond which they should not borrow.
Until recently the IMF had played down such concerns, but in October it said that “a continuation of the elevated pace of debt accumulation seen in 2014-16 would increase public debt to unsustainable levels,” not just among African oil exporters, which have seen their public sector debt double to an average of 45 per cent of gross domestic product since 2010-13, but even in nonresources economies where the rise has been more modest, from 46 per cent of GDP to 59 per cent.
The IMF said the number of low-income countries in, or facing high risk of, debt distress jumped from seven in 2013 to 12 in 2016, with every sub-Saharan country bar Namibia now rated as subinvestment grade. Foreign currency reserves are “below adequacy levels in many countries”.
It blamed the growing debt problem on widening fiscal deficits, disappointing economic growth, lower commodity prices and weaker currencies in some countries and called for a wave of fiscal consolidation and structural reforms to tackle constraints on growth.
Cameroon, Cape Verde, Ivory Coast, Gabon, Ghana, Kenya, Rwanda, Seychelles, Uganda and Zambia are all in IMF programmes, while the Republic of Congo is in negotiations to join them. Mozambique had its programme suspended last year after it tried to conceal more than $2bn of secret loans used to purchase a non-existent tuna-fishing fleet.
Despite the existence of the IMF programmes, the median debt-to-GDP ratio of the 18 sub-Saharan nations rated by Fitch is projected to reach 52.6 per cent this year, up from a low of 28.6 per cent in 2011 and the highest figure since 2005, as the second chart shows.
This conceals a wide variation, with projected debt-to-GDP ratios of 131.1 per cent in Cape Verde, and 90 per cent-plus in Mozambique and Republic of Congo, where it was just 21.4 per cent in 2010.
Debt levels have tripled in Gabon and Namibia over the same period, while the region’s two biggest economies have also seen a big rise in their debt-to-GDP ratio since 2008, with South Africa witnessing a more than doubling to 54.5 per cent and Nigeria’s ratio almost trebling, admittedly to only 19.9 per cent.
All but three of the countries tracked by Fitch are also likely to see their debt service costs rise in relation to government revenues this year, a potentially more telling measure, pushing the continent-wide average to a 16-year high. Ghana is set to have the highest ratio, with debt interest soaking up 35.4 per cent of government revenue.
Fitch’s forecasts suggest that both the average debt-to-GDP and debt serving cost-to-government revenue ratio will tick modestly lower in both 2018 and 2019. The benefits may evade most people, however, with Nigeria and Ethiopia, the most populous countries, expected to see a worsening of their debt metrics.
Mr Friederich played down the projected improvement, arguing it was small in relation to the surge in debt in recent years.
In Mozambique, for instance, Fitch projects that the debt-to-GDP ratio will fall to 91.8 per cent in 2019, from a high of 114.2 per cent last year, given that the currency has recovered a little of its 2015-16 losses (helping raise GDP in dollar terms), but that is still well above the level of 37.8 percent in 2011.
On the plus side, Mr Friederich said rising commodity prices were helping stabilise public debt in Angola, Namibia and Zambia, while Kenya’s finances should improve as several infrastructure projects wind down and Ghana is “making progress” under its IMF programme and seeing a marked fall in interest rates.
“An unusually large number of sovereigns that we cover are now in an IMF programme. As long as they stay in the programmes it will help to control the debt problem. That is supporting astabilisation and, to some extent, a decline in debt ratios,” he added.
However, Mr Friederich was not convinced the improvement would continue when the IMF left. “We see quite a few countries with very strong growth, which is helping their debt stabilisation and reducing their balances, but the challenge for them is that they tend do assume that that very strong growth will last indefinitely.
“But what we have seen in Africa more than in any other region is that growth periods can be disrupted. If that happens we could see another episode of ramping up of debt levels. That is a concern almost across the board in the region,” said Mr Friederich, who feared that foreign appetite for African debt was unlikely to remain at its current levels, potentially pushing debt servicing costs higher.
Despite a series of ratings downgrades in recent years, Fitch still has six sub-Saharan countries on negative outlook and none on positive outlook.
Capital’s Mr Jackson said he remained concerned about Angola’s debt position, “given that the official exchange rate still seems to be overvalued,” while debt ratios were also likely to continue to tick higher in the region’s two largest economies.
“In South Africa almost every conversation is about debt and downgrades. In Nigeria [it is] concerns about debt servicing eating up more government revenues. People can lose confidence,” he said.
Mozambique's currency, the Meticals has surged in the past year
NOVEMBER 16, 2017 Steve Johnson, www.ft.com
The governments of major sub-Saharan African nations are more indebted than at any point since 2005, when the IMF and World Bank were writing off tens of billions of US dollars of debt under their heavily indebted poor countries initiative.
Worse still, the cost of servicing this debt has risen to an average of 12.2 per cent of government revenues, up from a low of 5.4 percent in 2011 and the highest figure since 2001, before the wave of debt forgiveness.
“The long-term forces that are driving up debt are not really under control,” said Jan Friederich, a senior director in the sovereigns and supranationals group at Fitch Ratings. “One of the fundamental issues is relatively weak public financial management in most sovereigns in the region.”
William Jackson, senior emerging market economist at Capital Economics, a consultancy, added:
“Generally finances in the emerging world have been improving over the last 15-20 years but sub-Saharan Africa is one region where debt levels have deteriorated. We have warned about the rise in debt across [the region].”
The figures come just weeks after Patrick Njoroge, governor of the central bank of Kenya, warned that a “secular increase” in African public debt has pushed several governments towards a debtservicing threshold beyond which they should not borrow.
Until recently the IMF had played down such concerns, but in October it said that “a continuation of the elevated pace of debt accumulation seen in 2014-16 would increase public debt to unsustainable levels,” not just among African oil exporters, which have seen their public sector debt double to an average of 45 per cent of gross domestic product since 2010-13, but even in nonresources economies where the rise has been more modest, from 46 per cent of GDP to 59 per cent.
The IMF said the number of low-income countries in, or facing high risk of, debt distress jumped from seven in 2013 to 12 in 2016, with every sub-Saharan country bar Namibia now rated as subinvestment grade. Foreign currency reserves are “below adequacy levels in many countries”.
It blamed the growing debt problem on widening fiscal deficits, disappointing economic growth, lower commodity prices and weaker currencies in some countries and called for a wave of fiscal consolidation and structural reforms to tackle constraints on growth.
Cameroon, Cape Verde, Ivory Coast, Gabon, Ghana, Kenya, Rwanda, Seychelles, Uganda and Zambia are all in IMF programmes, while the Republic of Congo is in negotiations to join them. Mozambique had its programme suspended last year after it tried to conceal more than $2bn of secret loans used to purchase a non-existent tuna-fishing fleet.
Despite the existence of the IMF programmes, the median debt-to-GDP ratio of the 18 sub-Saharan nations rated by Fitch is projected to reach 52.6 per cent this year, up from a low of 28.6 per cent in 2011 and the highest figure since 2005, as the second chart shows.
This conceals a wide variation, with projected debt-to-GDP ratios of 131.1 per cent in Cape Verde, and 90 per cent-plus in Mozambique and Republic of Congo, where it was just 21.4 per cent in 2010.
Debt levels have tripled in Gabon and Namibia over the same period, while the region’s two biggest economies have also seen a big rise in their debt-to-GDP ratio since 2008, with South Africa witnessing a more than doubling to 54.5 per cent and Nigeria’s ratio almost trebling, admittedly to only 19.9 per cent.
All but three of the countries tracked by Fitch are also likely to see their debt service costs rise in relation to government revenues this year, a potentially more telling measure, pushing the continent-wide average to a 16-year high. Ghana is set to have the highest ratio, with debt interest soaking up 35.4 per cent of government revenue.
Fitch’s forecasts suggest that both the average debt-to-GDP and debt serving cost-to-government revenue ratio will tick modestly lower in both 2018 and 2019. The benefits may evade most people, however, with Nigeria and Ethiopia, the most populous countries, expected to see a worsening of their debt metrics.
Mr Friederich played down the projected improvement, arguing it was small in relation to the surge in debt in recent years.
In Mozambique, for instance, Fitch projects that the debt-to-GDP ratio will fall to 91.8 per cent in 2019, from a high of 114.2 per cent last year, given that the currency has recovered a little of its 2015-16 losses (helping raise GDP in dollar terms), but that is still well above the level of 37.8 percent in 2011.
On the plus side, Mr Friederich said rising commodity prices were helping stabilise public debt in Angola, Namibia and Zambia, while Kenya’s finances should improve as several infrastructure projects wind down and Ghana is “making progress” under its IMF programme and seeing a marked fall in interest rates.
“An unusually large number of sovereigns that we cover are now in an IMF programme. As long as they stay in the programmes it will help to control the debt problem. That is supporting astabilisation and, to some extent, a decline in debt ratios,” he added.
However, Mr Friederich was not convinced the improvement would continue when the IMF left. “We see quite a few countries with very strong growth, which is helping their debt stabilisation and reducing their balances, but the challenge for them is that they tend do assume that that very strong growth will last indefinitely.
“But what we have seen in Africa more than in any other region is that growth periods can be disrupted. If that happens we could see another episode of ramping up of debt levels. That is a concern almost across the board in the region,” said Mr Friederich, who feared that foreign appetite for African debt was unlikely to remain at its current levels, potentially pushing debt servicing costs higher.
Despite a series of ratings downgrades in recent years, Fitch still has six sub-Saharan countries on negative outlook and none on positive outlook.
Capital’s Mr Jackson said he remained concerned about Angola’s debt position, “given that the official exchange rate still seems to be overvalued,” while debt ratios were also likely to continue to tick higher in the region’s two largest economies.
“In South Africa almost every conversation is about debt and downgrades. In Nigeria [it is] concerns about debt servicing eating up more government revenues. People can lose confidence,” he said.