The risk of a new debt crisis is looming over African countries, Ecofin Agency deduced from corroborative data.

In a recent note published by Moody's on the public debt of frontier markets' governments, it is revealed that starting from 2019, an important part of public budgets and foreign reserves will be used to pay international bonds.

For instance, Zambia will have to refund about $3 billion between 2022 and 2027, about 1.5 times the total volume of its estimated foreign reserves in late September 2018. Still, in Zambia, the interest rate on its international bonds maturing in 2022 rose to 16.2% in late September (two times more than the initial interest rate which was 8.5%) against 6.2% in April 2018.

In short, for all the countries in the region in similar cases, refunding or refinancing international debts will become increasingly complex as of next year. Another challenge is that those countries will still have deficits with poor capacities to mobilize their local financial systems which are not that resilient.

Out of the 17 Subsarahan countries graded by Moody's, only Senegal and Egypt had Bank assets to GDP  largely above the African average of 35% in late 2017, against 75% in Asia.

This case is not similar in every African country however. Indeed, even though Egypt’s debt is huge, this debt is essentially owed to local operators; it, therefore, is less exposed to foreign currencies' fluctuations on the international market.

Senegal, Côte d'Ivoire and Cameroon (to some extents) had sufficient margin and above all, they enjoy stable rates once their bonds initially issued in dollars is converted to  Euro. They thus enjoy the advantages of the pegged exchange rate of their currencies and the Euro.

A solution to this problem, which is complex and difficult, is fiscal consolidation. In that regard, the IMF, World Bank, central banks as well as regional banks call for better mobilization of fiscal revenues. A measure that generally goes together with increase of consumer prices and tax evasion.

Idriss Linge