A few days ago, the republic of Zambia became the first country in Africa to default on a debt in the wake of COVID-19. This was as the country’s ministry of finance announced a consent of solicitation to suspend interest payment (worth $120.0mn) on its three outstanding Eurobonds (totalling $3.0bn) till April-2021.
Following the announcement, the prices of the country’s outstanding Eurobonds plunged to nearly half their face value.
Notably, the situation in Zambia was unsurprising to us as we had earlier noted in our H2-2020 outlook report that debt sustainability was a big concern for African countries in the wake of COVID-19, especially with regards to external borrowings amid declines in the price of key export commodities of most African countries.
Although, Zambia was in a dire situation compared to peers since the country had just 1.8-month worth of import cover and a debt to GDP ratio of about 88.6%. Notably, this development draws us to Angola, which also has a worrisome debt to GDP ratio of over 100% and projected by the Angolan government to further hit 120% by the end of 2020.
Even though Angola has negotiated $6.0bn in debt relief with some of its lenders and promised to fulfil its debt obligations, the country remains at a high risk of default on its 5 outstanding Eurobonds, especially if crude oil prices fall further.
While we expect these Sub-Sahara African sovereigns to ultimately service their obligations, Zambia and potentially, the Angolan, default worries may worsen the credit risk premium for SSA issuers in the international capital market.
UNITED CAPITAL RESEARCH