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Supervisor Elham AbolFateh
Editor in Chief Mohamed Wadie

Fitch, Moody's Warn of Sovereign Defaults in Africa


Wed 09 Dec 2020 | 08:50 PM
Taarek Refaat

Credit rating agencies "Moody's and Fitch" warned on Wednesday of rising levels of African debt in the wake of the COVID-19 crisis, raising the risk of a second wave of sovereign defaults and rising African debt risks.

A new report by Fitch estimated that weak growth and high spending will push average sub-Saharan African debt to more than 70% of Gross Domestic Product (GDP) next year.

The debt ratio to GDP is expected to reach 127% in Angola, 151% in Cabo Verde, 124% in the Republic of the Congo, 110% in Mozambique and 138% in Zambia.

By 2022, debt is expected to decline in most of these countries, however, South Africa, Uganda and Rwanda are expected to see further increases of 10 percentage points in their debt levels.

"The increase in sub-Saharan debt will raise concerns about debt sustainability, liquidity and increased sovereign default risk," Fitch said.

The low credit rating of Angola, Congo, Gabon and Mozambique 'CCC' ratings means that they were at "high risk of default".

Fitch added that eight countries in the region will need to spend around 20% of their revenues to payoff interest expense on debt by 2022, while for the other countries, the ratio will exceed 30% by 2021/22.

Moody's also raised concerns about the growing pressure on the African banking system due to the pandemic.

The rating agency expects non-performing loans (NPLs) to double this year from the previous year's estimates as repayment schedules expire. "With higher  account provisioning needs, lower business generation and limitation of marginal profit , pressure will erode banks’ profitability," Moody's said.

It estimated that non-performing loans (NPLs) will rise in Nigeria to 10-12% of total loans compared to 6% in 2019, yet, restructuring will mask the full extent of the deterioration.

NPLs in South Africa are expected to rise to more than 7-8% of loans, in Ghana and Kenya, estimates have already reached 15.5% and 13.6% respectively, while in Angola, non-performing loans are above 32% at the beginning of 2020.