More African Nations Seen Tapping G-20 Debt Plan on Revenue Drop

(Bloomberg) -- The economic damage wrought by the coronavirus will probably lead more African nations to seek debt restructuring, the head of the United Nations Economic Commission for Africa said.

Chad last month became the first state in Africa to request relief under a Group of 20 initiative to help countries cope with the economic fallout from the pandemic. Ethiopia applied two days later, followed by Zambia, which last year became the first African country to default on its debt since the onset of the pandemic.

With government revenue taking strain because of the slowdown in economic growth, some countries are less equipped to meet the demands of their citizens, Uneca Executive Secretary Vera Songwe said in an interview. She didn’t specify which nations might seek relief, but said it would be those made most vulnerable by the crisis.

“African countries don’t have the resilience buffers that we had in 2020,” Songwe said. “There probably will be more countries that will opt for the G-20 debt framework,” because they need additional fiscal space to purchase vaccines, she said.

Yield Spike

Angola and the Republic of Congo are particularly vulnerable to distress because they have high debt levels, severe economic recessions and borrowed significant amounts from China using resource-backed loans, Verisk Maplecroft said in a research note last week. Gabon’s government announced in January it’s seeking to “reprofile” its Eurobonds.

Ethiopia’s announcement on Jan. 29 that it will restructure its debt under the G-20 program triggered a sell-off of the nation’s Eurobonds. The yield on the 2024 securities rose to 9.14% on Wednesday, compared with 6.52% on Jan. 28.

READ: Ethiopian Eurobond Yields Surge as Fitch Sees Default Risk

The use of the G-20 framework needn’t hinder market access for African nations, Songwe said, citing the fact that Ivory Coast twice returned to the bond market since seeking debt-service suspension under a program initiated by the Paris Club of creditors in June.

“The market is in search of returns and they are not getting a lot of return in different geographies,” she said. “This is a geography where they are getting a good return.”

China Debt

The G-20 framework aims to bring creditors including China into an agreement to rework the debt of countries in danger of defaulting. China is Ethiopia’s biggest bilateral creditor, accounting for 23% of its total public debt burden of $27.8 billion, according to World Bank data.

Under the G-20 program, debtors are committed to seek similar terms of the resulting bilateral restructuring with private creditors. It’s unclear what that will mean for Eurobond-holders, said Songwe, who spent more than a decade at the World Bank before being appointed head of the UN body in 2017.

“We’ll get better clarity as one or two countries take it and start doing it,” she said. “But essentially when you restructure your debt, you put everything in the basket.”

Last year, Ecuador restructured its debt with bondholders and China after updating its International Monetary Fund loan program.

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