The creditor base for Africa’s debt continues to shift away from traditional multilateral and bilateral Paris Club sources toward commercial creditors and non-Paris Club official lenders.
The share of commercial creditors in Africa’s external debt stock has more than doubled in the last two decades, from 17 percent in 2000 to 40 percent by the end of 2019. At least 21 African countries accessed international capital markets between 2000 and 2020.
Non-frontier-market economies and low-income countries—which do not have access to international capital markets—have continued to rely on bilateral and multilateral concessional credit, although there has been a shift
away from traditional Paris Club lenders to nonParis Club lenders, notably China.
Significant vulnerabilities are emerging as a result of the changing landscape for Africa’s debt
As of December 2020, of the 38 countries for which debt sustainability analyses are available, 14 were rated in high risk of debt distress and another six were already in debt distress.
Sixteen countries have a moderate risk of debt distress, while two are considered at low risk. However, safety margins are being eroded by COVID–19, as spending rises and revenue falls.
Moreover, credit rating downgrades are likely to occur for many countries in the near to medium term. Other
emerging vulnerabilities include loss of access to international capital markets as a result of deteriorating debt sustainability ratings; fast-growing interest expenses as a share of revenue; rollover risks due to shorter debt maturities; a narrowing of the differential between the real (inflation-adjusted) interest rate and growth; expanding contingent liabilities; and limited transparency of debt collateralization.
Evidence shows that favorable external conditions, supported by sound domestic policies, contribute to shorter durations of bond market distress
Using secondary market information to assess the role that policies play in fostering recovery from debt distress, the report shows that the interaction between domestic policy and favorable external conditions help to speed up the recovery from debt distress.
Specifically, greater openness to trade supports faster bond-market distress recovery and the presence of an economic program supported by international financial institutions contributes to reducing debt distress episodes.
Stronger political rights also have a positive association with the speed of recovery from debt distress. But higher
interest rates on the 10-year US Treasury bond tend to extend the duration of debt distress.
Strengthening the links between debt financing and growth returns is crucial for debt sustainability in the continent
To grow out of debt in a sustainable manner, countries need to improve the efficiency of debt-financed investments. This is best done by ensuring that debt is used to finance the most productive projects—those that generate sufficient growth to pay for the debt in future.
Policymakers should take advantage of current low global interest rates to borrow relatively inexpensive capital for high return public investments that accelerate growth.
Culled from Africa Economic Oulook 2021 report produced by the African Development Bank
This is the link of the report: file:///C:/Users/HP/Downloads/afdb21-01_aeo_main_english_complete_0223%20(1).pdf
