Our Eurobond Political Risk Monitor, presented in the attached table, provides a go-to guide to the main political and policy issues in 17 sub-Saharan African (SSA) sovereigns that have issued Eurobonds as of July 2021. In this edition, our’Spotlights’ section looks at how international efforts to tackle the pandemic-related rise in debt levels across the region are evolving, Cote d’Ivoire’s uncertain medium-term political outlook, and Ethiopia’s efforts to spare bondholders amid debt negotiations and war.
Sub-Saharan Africa: DSSI to expire amid uncertain follow-up debt treatment strategy
Creditor nations still perceive the debt challenge SSA sovereigns are facing in the context of the Covid-19 pandemic primarily as a liquidity, rather than a solvency, problem. Following a second, final extension, the G20’s Debt Service Suspension Initiative (DSSI), which provided a short-term liquidity boost for 26 African countries participating in the scheme since May 2020, is set to end by 31 December 2021. After a one-year grace period, the repayment period for previously suspended debt payments will be five years, under net present value (NPV) neutral terms. G20 nations are thus handing responsibility for liquidity problems back to the International Monetary Fund (IMF). The decision to increase IMF member states’ Special Drawing Rights (SDRs) by USD 650bn, which will likely take effect by end-August, is an upside, but the extent to which low-income countries benefit will hinge entirely on proposals to reallocate SDRs to vulnerable countries, which have yet to be worked out. Meanwhile, progress on restructuring the debt of SSA’s first pandemic-era defaulters (Zambia, Chad, and Ethiopia) under the’Common Framework for Debt Treatments beyond the DSSI’ appears to have been limited thus far. While the form that debt treatments will take is still highly uncertain, there seems to be consensus, at least in principle, that private creditors should not be spared, though Ethiopia is trying to exclude its Eurobond from debt treatment.
Cote d’Ivoire: Back to the future?
Cote d’Ivoire weathered a contentious election cycle, with presidential polls in October 2020 and parliamentary elections in March 2021 and was the first SSA country since the start of the Covid-19 pandemic to issue a Eurobond. However, the return of former president Laurent Gbagbo on 17 June signals the continuation of a destabilizing pattern that has characterized Ivorian politics over the past three decades. The dominant feature has been fierce competition between – and fluid coalitions among – Gbagbo (76; president from 2000-2011), Henri Konan Bedie (87; 1993-1999) and President Alassane Ouattara (79; 2011 to date). Ouattara had enabled Gbagbo’s return by suspending domestic charges after the International Criminal Court (ICC) earlier this year had acquitted Gbagbo of crimes against humanity allegedly committed in the context of the 2010/11 post-electoral crisis. However, rather than retiring from politics, as Ouattara may have hoped, Gbagbo is deepening ties with his former enemy Bedie. Both men will likely mobilize against Ouattara by questioning the legitimacy of his current third term and pushing a yet-to-be defined ‘reconciliation’ agenda ahead of the 2025 general election.
Ethiopia: Bondholders to be spared amid debt restructuring, war and sanctions risks?
Once a celebrated reform story, Ethiopia’s fortunes have dramatically turned since 2020. Internal strife, above all the conflict that erupted in Tigray in November 2020, poses a serious threat to political stability, the fiscal and liquidity outlook, and Prime Minister Abiy Ahmed’s international standing. While Abiy declared a unilateral ceasefire amid a hasty retreat from Tigray, the risk of continued conflict is high as Tigrayan fighters threaten to take on Amhara forces. The deepening humanitarian disaster and famine – and any accusations that the federal government is blockading Tigray – increase the risk of further Western sanctions. Amid the combined fiscal shock from Covid-19 and the war effort, Ethiopia in January requested debt treatment under the’Common Framework’. Unlike Zambia, which has already defaulted, Ethiopia is trying to exclude Eurobond holders and its main strategy appears to be debt reprofiling. So far, it is up to date on coupon payments (last due on 11 June). This month the government signaled its intention to restructure USD 1bn in debt but hastened to clarify that this was not Eurobond debt. While the finance ministry says that USD 2.5bn worth of commercial debt has already been deferred by five years, a full creditor committee under the Common Framework process has yet to be formed.2021-07-15_SUB-SAHARAN-AFRICA-Eurobond-Political-Risk-Monitor