Nairobi, the capital city of Kenya

Global Outlook: African sovereigns at high risk of debt distress

In EIU’s May 2024 Global Outlook video, editorial director for the Middle East and Africa, Pratibha Thaker, and principal economist, Benedict Craven, discuss the current status and prospects for African debt.

Four sovereigns in Africa have pursued debt restructuring under the G20’s Common Framework, an initiative for countries that were eligible for the 2020‑21 Debt Service Suspension Initiative, which was designed to coordinate the approach to debt relief among official and private creditors. Talks for Ethiopia, Ghana and Zambia are ongoing, and Malawi is pursuing a restructure outside the Framework. 

In the case of Zambia and Ghana, this incentive mechanism has not been entirely effective. Both are commodity exporting countries and high export prices mean debt carrying capacity could easily improve in the future. Creditors are wanting to build this contingency into their deals with these sovereigns which has caused delays.

Zambia has been in limbo the longest, and the country’s experience has been a cautionary tale. The government defaulted on its external debt in 2020, and EIU forecasts it will secure a final deal under the Common Framework only in the latter half of 2024. However, urgency has only really picked up for Zambia in the last couple of weeks due to its drought, endangering potential for value recovery clauses to kick in for its creditors.

“There are seven countries that would qualify for a treatment under the Common Framework that we judge to be at a high risk of distress. As forecast by EIU, Kenya has been excluded, as the sovereign was able to issue a Eurobond in early 2024 to cover most of a US$2bn bullet repayment falling due in June, albeit with a sizable risk premium. This has lessened the risk of external default in a large African market with a highly fragmented credit pool. For all the countries included, external debt is concentrated in official loans. In several cases, the outcome of a restructure could in principle be decided by a single, official creditor committee of bilateral lenders.”

Benedict Craven, Principal Economist, MEA, EIU

Other African sovereigns face a different set of difficulties that lie in the large share of debt that would be off limits, in the event of a restructure. Almost one‑half of aggregate debt owed by low‑income, high‑risk African countries is multilateral (of which three‑quarters is concessional) and therefore largely non‑negotiable. Ring‑fencing such a large share of debt creates a risk that other creditors, who would have to absorb steeper losses than otherwise in order to restore debt sustainability, would resist participation in providing debt relief. 

Egypt and Tunisia are two middle-income African countries at high risk of debt distress. In Egypt, the risk of an external default has diminished alongside an augmented IMF programme that followed currency reform in March and a giant foreign direct investment deal with the UAE. Although Egypt has proven numerous times that it can count on international bail‑outs when absolutely needed, the prospect of a domestic debt restructuring remains. 

Tunisia is at high risk of an external debt default and does not have the financial lifelines that Egypt has been able to secure. A restructure in Tunisia would be the most challenging of any sovereign at high risk of distress. The authoritarian president, Mr Saïed, rejected a US$1.9bn IMF programme back in 2023 and is unwilling to resume discussions with the Fund, including for annual article IV reviews, while he focuses on securing re‑election this year.

The analysis and forecasts featured in this video can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the political and economic outlook for nearly 200 countries, enabling organisations to identify prospective opportunities and potential risks.