The rising number of maturities on bonds and deteriorating financial conditions will increase financing pressures on lower-rated African sovereigns as they seek to roll over debt in the coming decade, warns Moody’s Investors Service.
Many African countries will face problems refinancing loans as bonds mature over the next decade, warns a report published on 28 June by Moody’s Investors Service.
In the report, David Rogovic, vice president and senior analyst at Moody’s Investors Service, warns that a “wall” of bond maturities, combined with deteriorating financial conditions, will increase financial pressure on many African sovereigns as they seek to roll over debt, especially those at the end of the rating scale.
But there is still time to take action to restore lender confidence, according to the report.
Financing pressures will increase
“A maturity wall is approaching. Maturities on international bonds issued in the previous decade will peak in 2024 and remain elevated for the next decade. This upcoming maturity wall will increase financing pressures, particularly for lower-rated sovereigns with a limited track record of refinancing international bonds,” he writes.
Moody’s says Ghana, Tunisia, Kenya, and Egypt are particularly vulnerable given their relatively low current reserve coverage of principal repayments due between 2022 and 2026 if they are unable to roll over their maturing bonds.
Moody’s also notes that Ghana’s few financing alternatives increase its credit risks, while Gabon and Namibia face financing pressure ahead of bond maturities in 2025.
“Ghana’s maturities do not peak until 2026, but fewer financing alternatives increases its credit risks. Gabon (Caa1 stable) and Namibia (B1 stable) will face financing pressure ahead of bond maturities in 2025.”
Rise in international borrowing costs
The report argues that Russia’s invasion of Ukraine in February has accelerated rate increases by central banks in advanced economies, contributing to a rise in international borrowing costs.
“Financial conditions are deteriorating as governments are still grappling with successive shocks. Rising borrowing costs has already seen a number of sovereigns postpone or cancel international bond issuance. These more difficult market conditions coincide with increased borrowing requirements as a result of weaker growth and social spending pressures triggered by Russia- Ukraine crisis.”
For instance, Kenya has postponed its planned debt issuance in response to rising yields.
Côte d’Ivoire has followed the same path by delaying its issuance plans and relying only on the regional bond market to meet its financing needs for this year.
Inflationary pressures due to the rise in energy and food prices expose countries to tight financial conditions. The Covid-19 pandemic and the war in Ukraine have only exacerbated already existing trends, including increased food prices and debt-to-GDP ratios.
