More African countries are expected to make use of the G-20’s debt restructuring plan

(Bloomberg) — More African countries are expected to join Chad, Zambia, Ethiopia and Ghana in debt restructuring under the so-called Common Framework of the Group of 20 countries, the head of a United Nations panel said.

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“You could say there are four or five countries that are definitely at risk of falling into that debt trap,” Antonio Pedro, the executive secretary of the UN Economic Commission for Africa, said in a telephone interview from Addis Ababa, the capital of Ethiopia. . He refused to identify them.

As many as 15 emerging markets, tracked by a Bloomberg gauge, have average yields on dollar bonds trading at more than 10 percentage points against U.S. Treasuries, an indication of distress. Among them are defaulters Zambia, Ethiopia and Ghana. Tunisia, which reached a crucial agreement with the International Monetary Fund last year, is also on the list.

Dollar bonds from Nigeria and Egypt are hovering near the so-called danger zone, with yields averaging more than 7 percentage points above government bonds. The extra return investors are demanding to hold Mozambique’s national debt is also high, according to data from JPMorgan Chase & Co.

Chad became the first country to sign a deal in 2021 to restructure its debt under the common framework. Ethiopia and Zambia are negotiating agreements, while Ghana announced earlier this month that it intended to seek relief under the plan.

Rising interest rates and the strengthening of the US dollar are likely to see more countries join them, Pedro says.

The G-20 mechanism, which brings the Paris Club of traditionally rich debtor countries together with China to try to restructure low-income countries’ debts on a case-by-case basis, has drawn criticism for being sluggish and sluggish. cumbersome to perform.

Proposed reforms

According to Pedro, the African authorities are proposing several reforms to improve the framework. They include developing a burden-sharing arrangement between private and official creditors, expanding creditors’ committees to include private entities from the start of restructuring talks, expanding access to the framework to middle-income countries and giving countries more time to take advantage of it .

Increasing trade would help African countries improve their finances, and the African Continental Free Trade Zone could play a key role, Pedro said. Since the signing of the AfCFTA agreement in 2018, countries have started developing payment systems and several regions are liberalizing tariffs, some of which already trade 60% of goods duty-free.

Pedro also supported calls for the reallocation of the IMF’s so-called special drawing rights, reserve assets that operate like an overdraft and without conditions, from rich to poorer countries. The African Development Bank has been lobbying rich countries to use their rights to the SDRs to raise money to support poorer countries.

Read: African lender wants to use the IMF reserve funds of rich countries

“There is an opportunity to democratize the allocation of the special drawing rights, basically tapping into those dormant SDRs for countries that didn’t need it,” he said. “We might have access to $100 billion or so.”

Other interview highlights:

  • There is a huge opportunity for Africa to produce parts for electric vehicles, with the potential market growing from $7.7 trillion in 2025 to $46 trillion in 2050.

  • The development of carbon credit markets on the continent, particularly in the Congo Basin in Central Africa, could generate more than $82 billion a year, assuming a price of $120 per tonne of carbon.

  • Average inflation in Africa is expected to slow to 12.9% this year, from an estimated 14.3% in 2022.

  • Monetary tightening is expected to continue this year in most African countries, albeit at a slower pace due to a downward trend in inflation.

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