In the Aftermath of Zambia’s Default, Fitch Warns Four Other African Countries Could Soon Follow

One of the world’s major credit ratings agencies, Fitch Ratings, issued an ominous warning that last week’s downgrade of Zambia’s will likely not be the last in Sub-Saharan Africa. In an article published on its website yesterday, the agency highlighted Angola, the Republic of Congo, Gabon, and Mozambique as candidates for further downgrades, because they “face acute liquidity pressures and very high debt levels.”

All four countries have already been downgraded by Fitch this year.

While Fitch appears to be most worried about debt sustainability in these four African countries, the ratings agency did not identify Chinese debt as a point of concern, particularly related to Angola and the Republic of Congo, where Chinese debt levels are higher than in most other African countries.

Instead, Fitch focused on the challenge presented by private creditors, specifically Eurobond holders, and the mounting pressure that governments now feel to meet their repayment obligations.

Key Highlights of the Fitch Ratings Article on African Debt:

• DON’T INCLUDE PRIVATE DEBT IN THE DSSI MIX: “Fitch continues to believe that mandatory inclusion of private-sector debt service as a condition for official debt relief under DSSI is unlikely, as it would greatly reduce the number of countries participating in the initiative.”

• GOVERNMENTS HAD BETTER REPAY BONDHOLERS, OR ELSE…:“If sovereigns request debt-service suspension from private creditors, this could qualify as a distressed debt exchange and lead to the rating being revised to ‘RD’ (Restricted Default) if Fitch judges it necessary to avoid a traditional payment default.”

COMMENTARY: Despite months, even years, of rising panic in Africa and elsewhere about the looming threat of a Chinese-induced debt default in Africa, it’s the bondholders and other private creditors that both ratings agencies like Fitch and finance ministers seem most concerned about. They’re worried that a downgrade like what happened in Zambia last week will make it even more difficult for these economies to dig themselves out of the hole they’re in today, due to higher borrowing costs and restricted access to global capital markets. 

This isn’t to say that renegotiating Chinese debt isn’t a priority among African governments, but at least for now, it doesn’t seem to be the paramount concern. Instead, avoiding a downgrade from the likes of Fitch appears to be the main objective.

SUGGESTED READING:

• Fitch Ratings: Zambia Downgrade Highlights Risk of African Sovereign Defaults

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The post In the Aftermath of Zambia’s Default, Fitch Warns Four Other African Countries Could Soon Follow appeared first on The China Africa Project.

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