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REDD Intelligence on the outlook for African debt in 2021
As we all know, Africa has a looming debt crisis and there are expectations for a boom in international bond issuance in the first quarter of next year. Joining CNBC Africa to look into African debt markets is Mark Bohlund, Senior Credit Analyst at REDD Intelligence.
Tue, 15 Dec 2020 16:09:54 GMT
Disclaimer: The following content is generated automatically by a GPT AI and may not be accurate. To verify the details, please watch the video
AI Generated Summary
- Favorable lending conditions post-US election rally in emerging markets are driving an increase in bond issuances by African sovereigns.
- Countries like Namibia are utilizing the current low interest rate environment to address upcoming debt redemptions with new bond issuances at favorable rates.
- Foreign investor participation in debt offerings by African countries is expected to vary, with more vulnerable economies facing challenges in attracting funds at higher yields.
Africa is on the brink of a debt crisis, with expectations for a surge in international bond issuances in the first quarter of 2021. Mark Bohlund, Senior Credit Analyst at REDD Intelligence, sheds light on the driving factors behind this anticipated increase in debt issuances. According to Bohlund, the recent surge in market activities can be attributed to favorable lending conditions resulting from the post-US election rally in emerging market assets. Countries like Namibia have already taken proactive steps to address their upcoming debt redemptions by issuing new bonds at lower interest rates compared to pre-COVID levels. This trend is expected to continue as sovereigns prioritize meeting their near-term financial obligations while taking advantage of the current low interest rate environment to secure longer-term financing. However, the looming question remains: At what yields will foreign investors be willing to engage in these debt offerings? While countries like Namibia and South Africa are poised to attract investors with yields below 5%, more vulnerable economies such as Ghana and Gabon may face challenges raising funds at higher interest rates, potentially ranging from 6% to 10%. Bohlund highlights the critical importance of assessing each country's credit conditions and fiscal health before committing to new bond issuances. In the case of Ghana, which currently allocates a significant portion of its government revenue towards debt servicing, investors may exercise caution in participating in future bond offerings. As Africa navigates the complexities of its debt market landscape, striking a delicate balance between financial sustainability and economic growth becomes paramount.
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