Sharp fall in Sub-Saharan external debt issuance
African governments might be heeding calls for caution
External debt issuance in Sub-Saharan Africa has fallen by nearly three quarters for the first half of the year, according to a new report by Refinitiv. This indicates that some of the continent’s largest economies may be heeding the warning that their dangerously high debt burdens could expose them to economic shocks.
Refinitiv, a financial markets data and infrastructure firm, published its investment banking activity report for the first half of the year, which shows external borrowing by governments fell 65% for the first six-months of 2019 versus the same period a year ago.
In total, governments borrowed more than $5bn – a figure that excludes SA – from external lenders. External debt is defined as money owed to creditors which can comprise foreign bondholders, banks and multi-lateral financial institutions.
Ghana and Kenya were the most active bond issuers after SA, with Kenya raising US$2.1bn via a US dollar-denominated bond, and Ghana issuing a US$3bn Eurobond in March, the largest bond offering in the region in 2019.
The African Development Bank (AfDB) at its annual meeting in Equatorial Guinea in June denied the continent has a debt crisis but has been urging caution with respect to the growing levels of public debt-to-GDP seen across the region.
Kenya has more than doubled its external debt-to-GDP in 10 years, rising from 19.9% in 2008 to 47.6% in 2018.
External debt typically entails emerging countries borrowing in a foreign currency, which during a financial crisis sees the debt increase relative to tax revenues if the crisis is typically accompanied by a large currency devaluation.
While in most cases overall debt-to-GDP levels are beginning to approach the upper-bound limit of 60% as defined by the AfDB, debt service costs are already accounting for a large proportion of tax revenues.
Nigeria provides a case in point. According to figures published in its regional economic outlook, the AfDB states that Nigeria is spending half of its tax revenue to service external debt, while in Ghana it is approaching 40%, causing its government to increase the amount of money allocated to servicing debt by 500%.
The knock-on effect implies governments have less resources to support essential social services like education, housing and hospitals.
“The drivers of the recent rise in debt differ by country, but the 2014 commodity price decline is a leading source of deteriorating fiscal positions, especially among oil exporters,” states the AfDB, in its regional outlook.