African Reserves

Resistance to shocks of African nations, debt sustainability varies widely despite shared vulnerabilities


Zambia, Angola and Gabon are Africa’s three riskiest economies in 2021 ranking

On the other hand, the characteristics common to the most brittle economies include net capital outflows, volatile and less globally traded national currencies, large net international liability positions, insufficient reserves and high foreign participation and the denomination of their public debt in foreign currencies – this is particularly true for Zambia, Angola and Gabon.

Zambia, Angola and Gabon make up the “3 at risk” for the Africa region in this year’s Scope ranking, which includes a particular focus on Africa.

Zambia and Angola participate in the G20 Debt Service Suspension (DSSI) initiative. Zambia has called for more comprehensive debt restructuring under an associated G20 common framework for handling debt beyond the DSSI, after defaulting on its debt at the end of 2020.

G20 Debt Relief Programs May Not Go Far Enough in Solving Africa’s Solvency Crisis

The continued focus of the G20 common framework on lengthening debt maturities and, only where appropriate, reducing NPV debt, risks improving the debt sustainability of many heavily indebted sovereign states. The DSSI and the Common Framework also target low-income countries, leaving many middle-income countries vulnerable to the debt crisis.

Many African governments are poorly placed to meet their increased medium-term debt service demands due to DSSI payment deferrals. Half of all rulers in sub-Saharan Africa were already at high risk or in debt distress before the Covid-19 crisis.

A more comprehensive debt restructuring involving debt cancellation could significantly improve the credit profiles of many of the poorest countries in the Africa region after the restructuring. We have called such a framework integrating debt cancellation more broadly: DSSI +.

Instead, by postponing today’s issues until tomorrow under the DSSI, interest and principal payments can fall due during times when there is less international support for relief. multilateral debt than there is today.

Zambia default has heightened concerns over Africa’s debt to China

Zambia’s default in 2020 has raised concerns about the repayment risk associated with other heavily indebted countries that have borrowed from China, such as Angola or Uganda, as the latter further seeks to modify loan clauses.

Among other African markets, Nigeria’s relatively less reliance on foreign currency financing as well as liquid domestic debt markets support external resilience. However, the persistence of high inflation has resulted in an overvaluation of the naira.

Meanwhile, Kenya’s outstanding external risks are being mitigated by the IMF’s extensive arrangements as well as the relief provided through DSSI, in which Kenya has turned and is participating in this year.

Our annual external vulnerability and resilience rankings assess countries on 1) underlying vulnerabilities to a potential balance of payments crisis; and 2) the degree of underlying resilience of economies when exposed to such an external crisis. This year’s ranking expanded the African sample to 12 countries in the region, up from two in 2020.

Download the 2021 report and rankings on external vulnerabilities and resilience (pages 11-15 for Africa).

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Dennis Shen is Director of Sovereign and Public Sector Ratings at Scope Ratings GmbH. Levon Kameryan, senior analyst at Scope Ratings and co-author of the report, co-authored this article.