African countries are struggling to raise funding after attempts to borrow from international capital markets were scuttled by rising interest rates and depreciating currencies, which have pushed debt repayments through the roof.
A new report by the African Export-Import Bank (Afreximbank) shows that bond issuance by African countries declined by 70 percent in 2022, with some countries such as Kenya compelled to cancel planned Eurobond issues.
According to the report titled “Africa’s 2023 Growth Prospects: Securing growth resilience in a polycrisis world”, only three African nations – Angola, Nigeria and South Africa – successfully accessed international capital markets in 2022, raising $6 billion, down from nine countries that raised almost $20 billion in 2021.
“Even though the sovereign debt of African countries is extremely low, they are overburdened by default-driven borrowing rates, which in a rising interest rate environment has pushed several into debt distress,” the report says.
Tightening global financial conditions, the report notes, resulted in disproportionate increases in risk spreads and large-scale capital flow reversals, causing most African countries to be shut out of capital markets and, for those that defended their currency, it drained hard-earned foreign exchange reserves.
Last year, Kenya cancelled a $1 billion Eurobond, citing high interest rates as a result of the Russia-Ukraine military conflict.
Nairobi’s decision came hot on the heels of Nigeria, which had cancelled a planned issue of $950 million, citing unfavourable market conditions during the timeframe approved for the fundraising. Former Treasury Cabinet Secretary Ukur Yatani said Eurobonds had become expensive in the wake of Russia’s invasion of Ukraine.
According to the World Bank the combined debt stock of low and middle-income countries rose by 5.6 percent to $9 trillion in 2021, from $8.6 trillion in 2020, and sub-Saharan Africa’s debt accumulation rate slowed to two percent from 5.6 percent in the same period.
Some 22 countries on the continent are either in debt distress or at high risk of debt distress.
“In addition to shutting even more countries out of international capital markets, any additional monetary tightening risks further eroding global investor sentiment, which would trigger yet another wave of damaging capital outflows,” says the Afreximbank report.
“The attendant currency depreciation would raise the cost of servicing external debt, undermining fiscal and debt sustainability objectives,” the report added.
Efforts by key global central banks to rein in inflation are taking priority but this is having a negative effect on Africa, with higher external debt servicing costs and a collapse in African sovereign debt issuance.
But Afreximbank forecasts robust economic growth across the continent, with aggregate output projected to expand by around 4.1 percent this year from the 3.9 percent recorded in 2022.
Among net-oil-importing nations, Morocco is expected to enjoy one of the strongest rates of growth following a sharp slowdown caused by drought, rising energy prices and growth deceleration in the EU, its main trading partner.
GDP growth is projected to strengthen in East Africa, the fastest-growing sub-region, to around five percent, from 4.1 percent in 2022, buoyed by strong growth in traditional high performers Rwanda (6.7 percent), Uganda (5.9 percent), Ethiopia (5.3 percent), Tanzania (5.2 percent), and Kenya (5.1 percent).
East Africa as a whole is projected to account for around 15 percent of the continent’s growth in 2023, up slightly from 14 percent last year.
In a major departure from historical trends, Central Africa is forecast to be the second fastest-growing sub-region as oil-exporting countries capitalise on commodity price tailwinds and improving terms of trade in the energy sector.
The sub-region’s aggregate GDP is forecast to expand by 4.5 percent this year, boosted by growth acceleration in a few countries, notably the Democratic Republic of the Congo (6.7 percent), Congo Republic (4.7 percent) and Cameroon (4.6 percent).
North Africa is forecast to be the third fastest-growing sub-region this year, with its combined GDP expected to expand by around 3.9 percent, shored up by still-robust growth in Egypt.