Africa Is Already Moving Past Defaults, Citigroup Economist Says

Colleen Goko
Thu, October 19, 2023



(Bloomberg) -- The probability of another sovereign debt default in Africa in the near term is practically zero, according to Citigroup Inc. economist David Cowan, who cites rebounding growth and multilateral support as the cushioning factors.

“We’ve reached a point now whereby the immediate threat of default has probably receded,” Cowan, a managing director and economist covering Africa at Citi Research, said in an interview with Bloomberg. “I don’t think anyone expects a default in the next six months.”

Even as Ghana and Zambia struggled this year to restructure their debt after payment failures, investors fretted over the potential for more defaults because of tighter monetary conditions. Those fears escalated in the past three months amid surging US yields and slowing global growth. However, domestic growth and the International Monetary Fund’s participation in the nations’ fiscal recast have made a credit event unlikely, Cowan said.

“There is no clear and obvious reason why we would expect a wider number of defaults across Africa in the coming years, even despite rising debt burdens in a large number of countries.”

The extra yield investors demand to own sovereign dollar bonds of African governments rather than US Treasuries has jumped 175 basis points since July to 927, according to JPMorgan Chase & Co. data. However, it is still lower than the 1000-plus levels — the widely accepted threshold that signified debt distress — that it had traded at until May.

The eurobond repayment burden of African countries is set to peak in the next two years with about $9 billion due, Bloomberg calculations show. Countries with big maturities due include Angola and Kenya.

At meetings this month in Marrakech, Morocco, the IMF said it will support at least eight countries facing a funding squeeze. Ghana and Zambia have both sought emergency bailouts and are restructuring their debts, while investors are watching Kenya, Angola, Malawi and Mozambique, among other heavily-indebted countries on the continent. Some countries that have received IMF funds are Tanzania, Ghana and Ivory Coast.

“These IMF programs are different from what we saw in the late 80s, early 90s, when cutting expenditure to stop default was the key goal,” Cowan said. “And so the drive of these programs is to increase revenue to close the fiscal deficit.”

Energy Opportunity

Cowan, who partly grew up in Africa where his father installed telex machines and joined Citigroup in 2007, said the growth rebound witnessed by many of the continent’s nations in 2021 continues to be robust.

He said good growth paired well with evolving economic policy, and would allow debt levels to stabilize and fall. IMF forecasts point to faster growth next year: 5.3% in Kenya, 8.8% in Senegal and 4.3% in Zambia.

Commodities will form a part of this growth story, particularly gas which has been discovered in a number of regions.

“We also think that exploiting existing and new mineral finds will be important. Several estimates show that Africa holds around 30% of the world’s mineral resources,” Cowan said. The continent is poised to play a key role in the global green transition, with its proven reserves of cobalt, copper, lithium and nickel, he said.

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