Much of Sub-Saharan Africa’s debt is “within control” is what many policymakers keep reminding us. But here is my worry, sovereign debt of the region continues to rise and many analysts don’t see debt levels and debt servicing costs diminishing in 2016 and 2017.
See the 2000s were great for Sub Saharan Africa. First, the boom in commodity prices led to a considerable improvement in the fiscal position of sub-Saharan African commodity exporters. Second, the reduction in debt levels brought about by the Heavily Indebted Poor Countries/Multilateral Debt Relief Initiative allowed many sub- Saharan African countries to get a breather with debt cut to almost zero. Fast forward to 2016, and the forgiven debt is soaring again.
In less than five years, Sub Saharan Africa’s debt to GDP median ratio has risen from about 30.2% in 2011 to 49% in 2015. At the World Bank and IMF annual meetings in DC, I got an hour of an informal conversation with a seasoned economist and now Governor of the Kenyan Central Bank; Governor Patrick Njoroge and I was quick to make some notes. See, the Governor argued the debt is still manageable (and going with the median thresholds for B economies like Kenya, 50.3% is still decent) but we should look more closely not at the simple figure of Debt to GDP ratio, but the level of debt distress and indicators to that regard. This poses underlying questions like is the country about to default or is the debt manageable? In my view, Kenyan debt has two issues; prominence of domestic debt markets, which in turn have relatively higher interest rates (Notwithstanding the USD2.2bn in the pipeline) and second, the interest payments soaring to 14.2% of revenues which is above the above the B median of 8%. Again, these are manageable concerns but how about the rest of the region?
On paper, this is the case in a perfect economy but applying this prescription to the rest of the region, and then we have a problem.
Mozambique with all her woes takes the prizes for a gloomy mid-term. A decade ago, Mozambique’s growth was revered across the globe but less than a fortnight ago, the nation acknowledged that there is need to restructure her debt restructure if any aid was to trickle in; all ensuing loans of about $1.1bn VTB bank and Credit Suisse. From the latest release from Fitch Ratings, shows the binge in Mozambique’s woes from37.7%debt to GDP ratios in 2011 to130%in 2016. Speaking to Jan Friederich, the Senior Director and Head of Middle East and Africa Sovereigns earlier this month, he made it clear that debt will only be Economically (At least GDP wise) constructive if the projects pursued with debt revenues can aid in debt servicing in the long term.
With Ghana and Rwanda being the latest countries to take facilities from the IMF to service their debt, public debt accumulation and sustainability of debt levels is fast exposing Fiscal Indiscipline servicing burdens soar.
One of the more popular prescriptions from the IMF is“Countries that are still growing rapidly should rebuild buffers in comparatively favorable times to stem the increase in public debt.” Perusing our table above though, Net Oil Importers like Kenya, Rwanda and Uganda’s Debt projections are only climbing through to 2017.