Local debt markets could shield Africa as funding sources shrink, Moody's says
Moody's research shows the median interest rate on local currency debt in Africa stands at about 12%, compared with 8% in Latin America and 5.5% in Asian emerging markets, highlighting cost savings African sovereigns could achieve with deeper, more developed local markets.
Diron said in the previous decade, African governments had access to more diverse financing sources from the World Bank to comparatively affordable international bond market lending.
Today sources are more limited, and conditional, with rich nations cutting aid and concessional finance shrinking. Flows from China, a key source for countries such as Angola and Zambia, are turning net negative as repayments come due and fresh lending slows, she said.
'We're looking at a few years where the net flows are likely to be negative because the repayments are likely to be more significant,' Diron said of China.
Declining oil prices have also squeezed crude exporters' revenues, notably in Angola, and Diron said Moody's expects Brent futures to remain close to $65 (R1,161) per barrel, a drop of roughly $10 (R179) from their previous forecast.
Multilateral development banks are stepping in to fill gaps, Diron said, but the amounts were in the 'tens of billions', not enough to close the annual financing gap the African Development Bank has estimated at $400bn (R7.1-trillion).
Moody's was also monitoring further cuts in US funding of international institutions such as the International Monetary Fund, the World Bank or theAfrican Development Bank, Diron said.
She said: 'It would be a risk if multilateral development banks concluded they cannot lend as much as they have, specially at a time when the borrowing needs are, if anything, rising.'
Reuters
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