REDD Intelligence on the outlook for African debt in 2021

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.