Rating Downgrade Fears Muddle Relief Plan: Africa Debt Watch

LAGOS (Capital Markets in Africa) — Efforts to reduce the debt burden of African nations continued this week with private creditors offering a blueprint for contributing and the Paris Club of official lenders signing off on a payment halt for a sixth country.

Private investors said they may offer low-income countries cash to offset debt payments due this year, a mechanism that could avoid triggering default. The plan was put forward by the Institute of International Finance, a lobby group that discussed options with more than 100 investment firms.

Whether that proposal takes countries and creditors closer to an agreement remains a question.

“The progress toward having some kind of Eurobond moratorium is just losing momentum very quickly as governments indicate they want to retain market access,” Citigroup Inc. analyst David Cowan said in a call with investors.

As a sign of those risks, Moody’s Investors Service said it was placing Cameroon’s B2 credit score on review for downgrade. The firm said participation in the G-20 plan to suspend official debt payments raised the risk that private creditors will incur losses.

• Burkina Faso became the sixth country to benefit from a Paris Club debt halt this week.
• Zambia hired Lazard as its adviser on debt restructuring negotiations.
• Angola and its main lenders are in discussions to reschedule debt amid concerns of its sustainability.

Meanwhile, a rally in riskier assets has reduced borrowing costs in six African nations back to levels that may allow them to raise new funding costs.

Key Developments:

• China, Africa’s largest bilateral creditor, said it was considering more support for nations on the continent facing the greatest strain from the pandemic.
• U.S. Treasury Secretary Steven Mnuchin is demanding that the board of the African Development Bank organize an independent probe into allegations that President Akinwumi Adesina gave contracts and jobs to friends and relatives.
  The Paris Club expects to sign debt moratoriums with Pakistan and Ethiopia, according to a person familiar with the negotiations.
• Finance ministers agreed after meeting with the so-called Africa Private Creditor Working Group on the importance of remaining up todate on Eurobond coupon payments to maintain access to international debt markets after the coronavirus pandemic eases.

Earlier:

• The world’s wealthiest economies may need to pardon the debts of some low-income nations and help rework the obligations of larger developing countries if the coronavirus pandemic ravages their finances, according to the chair of the Paris Club.
• A debt standstill backed by the G-20 group of nations is unlikely to ease the significant credit challenges caused by the pandemic in frontier markets, particularly in Africa, according to Moody’s.