Africa: Limited impact of debt relief from China

LAGOS (Capital Markets in Africa) – Standard Chartered Bank indicated that Sub-Saharan African(SSA) countries will benefit from debt-service relief from China under the G-20 Debt Service Suspension Initiative. It expected the agreement to suspend the repayment of bilateral loans for low-income economies until the end of 2020. It considered that Angola, Zambia, Uganda, and Kenya will benefit the most from the suspension of debt payments to China, as they owe a large position of their external debt to Beijing and have not restructured their debt in recent years.
Further, it noted that rating agencies are unlikely to view the suspension of debt by official bilateral lenders as credit negative. Also, it anticipated a slowdown inChina’s Belt and Road investment activity in the region, as the country’s willingness to lend will be adversely affected by the debt relief. In parallel, Citi Research indicated that the amount of the suspended debt payments will be small, as African economies have increasingly borrowed on commercial and semi-commercial terms, as well as from multilateral lenders that are not part of the G-20 initiative, notably the World Bank. It said that Eurobonds represent an important share of commercial borrowing in the SSA region and that the Export-Import Bank ofChina and the China Development Bank are the dominant Chinese lenders on semi-commercial or on fully commercial terms in Africa. It noted that efforts to include Eurobond holders in the debt relief initiative did not succeed, due to the difficulty to get a coordinated stance from a diverse group of Eurobond investors, and to the concerns of African governments about a negative impact on their sovereign credit ratings.

Egypt: Pandemic to hinder efforts at deeper reforms
The International Monetary Fund considered that the COVID-19pandemic has hindered the Egyptian authorities’ plan to broaden and deepen the structural reforms that started under the IMF-sup-ported program in the 2016-19 period. It added that the government refocused its priorities to address the current economic and health crisis. It said that authorities have responded to the out-break with a comprehensive package that supports the economy and healthcare needs. Consequently, the Fund approved $5.2bnin funding under a 12-month Stand-by Arrangement (SBA) to ad-dress Egypt’s balance-of-payments and budget financing needs from the virus outbreak. It said that the authorities’ economic pol-icy framework will focus on necessary social and healthcare spending, and will try to avoid an excessive build-up of the public debt. It added that the structural reforms aim to strengthen the framework of public finances, improve governance and transparency, and reduce barriers to competition, in order to ensure sustainable private sector-led growth. It noted that the central bank of Egypt intends to anchor inflation expectations and financial stability while rebuilding reserve buffers and maintaining a flexible exchange rate. It expected that the disbursements under the SBA, along with financial support from development partners, will address the country’s large financing needs. Further, the IMF considered that the exceptionally high level of uncertainty about the severity and length of the global economic downturn will weigh on Egypt’s economic prospects.

Ethiopia: Ratings affirmed at ‘B’, outlook ‘negative’
Fitch Ratings affirmed Ethiopia’s long- and short-term foreign-and local-currency Issuer Default Ratings (IDRs) at ‘B’, with a negative’ outlook. It noted that the ratings are supported by the country’s robust medium-term economic growth potential, sustained external financial support to ease financing pressures, the predominance of concessional official borrowing relative to commercial debt, and an improving policy framework. But it said that the ratings are constrained by weak external finances, including persistent current account deficits, low foreign currency reserves, and rising external debt repayments, as well as by low development and governance indicators. It added that the ‘negative’ out-look reflects the adverse impact of the COVID-19 pandemic onthe country’s economic activity and on its public and external finances, in addition to political uncertainties that could increase inflationary pressure and weigh on tax collection and FDI in-flows. As such, the agency reduced its average real GDP growth forecast to around 3% from 7% previously in FY2019/20 andFY2020/21. It expected the inflation rate to average 18% inFY2020/21 compared to 20% in FY2019/20, despite the National Bank of Ethiopia’s tight monetary policy. Further, it estimated the fiscal deficit to have widened to 4% of GDP in FY2019/20due to increased coronavirus-related fiscal spending, and ex-pected the deficit to remain at that level in FY2020/21. In parallel, it forecast the current account deficit at 4.5% of GDP inFY2020/21.