Africa Debt Servicing Costs Surge and Changes in Government Financing

LAGOS (Capital Markets in Africa) – S&P Global Ratings indicated that the debt-servicing costs of 11 out of 17 rated Sub-Saharan African (SSA) sovereigns that are under the Heavily Indebted Poor Country (HIPC) Initiative have increased significantly since 2011. The HIPC, which is an initiative of the World Bank and the International Monetary Fund mainly, is a debt-relief program for countries that are unable to service their debt. The agency said that the initiative reduced the debt stocks of HIPC recipients in SSA but failed to permanently reduce their debt-servicing costs. It indicated that the average net general government debt level of these economies rose from 18% of GDP at the end of 2011 to 53% of GDP at end-2017, while their average debt servicing cost grew from 4% of revenues in 2011 to 11% of receipts over the same period of the year.

It considered that the increase in the debt burden mainly reflects the cost of financing the sizeable fiscal deficits, as well as the change in the types of borrowing across HIPC recipients. It said that the countries’ average fiscal deficit widened from 1.2% of GDP in 2011 to 5.5% of GDP in 2016, due to higher recurrent fiscal spending and lower fiscal revenues amid subdued economic activity in the region. In addition, S&P noted that HIPC recipients in SSA have increasingly resorted to costlier commercial sources of borrowing and have expanded their domestic debt issuance.