More African countries set to benefit from G-20 debt restructuring plan

(Bloomberg) – Other African countries are expected to join Chad, Zambia, Ethiopia and Ghana in trying to restructure their debts under the so-called common Group of 20 framework, the chief says. of a United Nations panel.

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

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

Nigerian and Egyptian dollar bonds are near the so-called danger zone, with average yields of more than 7 percentage points relative to Treasuries. The additional yield demanded by investors to hold Mozambique’s sovereign debt is also high, according to data from JPMorgan Chase & Co.

Chad became the first country to reach an agreement to restructure its debts under the Common Framework in 2021. Ethiopia and Zambia are in the process of negotiating agreements, while Ghana announced earlier this month that he intended to seek relief under the plan.

Rising interest rates and a stronger US dollar should prompt more countries to join their ranks, according to Pedro.

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

Proposed reforms

African authorities are proposing several reforms to improve the framework, according to Pedro. They include developing a burden-sharing agreement between private and official creditors, expanding creditors’ committees to incorporate private entities from the outset of restructuring talks, expanding access to the framework for middle-income countries and giving nations more time to enjoy it.

Increased trade would help African nations improve the state of their finances, and the African Continental Free Trade Area can play a key role, Pedro said. Since signing the CFTA agreement in 2018, countries have started to develop payment systems and several regions are liberalizing tariffs, with some already trading 60% of goods duty-free.

Pedro also backed calls for the reallocation of the IMF’s so-called Special Drawing Rights, reserve assets that operate like an overdraft and come with no strings attached, from wealthy countries to poorer ones. The African Development Bank has lobbied rich countries to use their rights to SDRs to help raise funds to support poorer countries.

Read: African lender wants to tap rich countries’ IMF reserve funds

“There is an opportunity to democratize the allocation of special drawing rights, essentially tapping into those dormant SDRs for countries that didn’t need them,” he said. “We might be able to access around $100 billion.”

Other interview highlights:

  • There is a huge opportunity for Africa to produce electric vehicle components, with a potential market expected to grow from $7.7 trillion in 2025 to $46 trillion by 2050.

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

  • The average inflation rate in Africa is expected to slow to 12.9% this year from 14.3% in 2022.

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

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