Research firm lists three African countries most likely to default on debts

Public debt risks will continue to be a key concern across Africa, with the threat of sovereign default highest in Ethiopia, Mozambique and Kenya, says Capital Economics.

The London-based economic research firm said current account positions would stay wide and external financing conditions “are likely to remain tough, with many countries locked out of international capital markets”.

“Ethiopia, Mozambique, and Kenya are most at risk of following Zambia and Ghana down the path of default. Large debts owed to China mean that, in the event of default, restructuring talks in Mozambique and Kenya could be lengthy,” it said in a new report.

It said public debt risks may remain a key concern in the region’s two largest economies, Nigeria and South Africa. 

“In the former, the government looks set to spend most of the freed-up resources from recent policy moves. And in the latter, austerity is likely to be scaled back as the ruling ANC seeks to cling on to power in next year’s elections,” the Africa economist at the firm, David Omojomolo, said. “In both countries, we suspect that officials will eventually turn to financial repression policies to keep a lid on debt.”

Economic growth across Sub-Saharan Africa may pick up over the coming quarters, but a challenging external environment means that balance of payments positions will remain under strain and fiscal and monetary policy will need to stay tight, the firm said. 

It said, “The recent policy shift in Nigeria is a positive step, but we remain concerned that officials are struggling to break from the interventionist and distortive policies of the past. 

“In the meantime, falls in the naira will push inflation towards 30% over the coming months and bring slower growth over next two years.”

In South Africa, the drags from loadshedding, austerity and tight monetary policy are likely to ease over the coming quarters, according to the report.

“But even so, the economy will remain stuck in the slow lane. Mounting public debt fears are likely to prompt the Reserve Bank to move slowly towards interest rate cuts.”

Capital Economics said Kenya’s economy would continue to stutter over the coming quarters and, with recent protests and legal challenges hobbling government efforts to enact vital austerity plans, the threat of a sovereign default is growing. “A crunch point looms with a large Eurobond payment due in the middle of next year.”

Angola’s economy will be weighed down by a combination of low oil output and the effects of the recent slump in the kwanza over 2024-25, it said.

The firm said, “Ghana’s economy appears to have now passed the worst of its crisis, but a tight fiscal stance and spillovers from the debt restructuring will hold back the recovery. 

“The stabilisation of the cedi and sharp falls in inflation will allow the central bank to cut interest rates a long way over the next year.”

The East African economies of Ethiopia, Tanzania and Uganda face a period of weaker growth in the near term but longer-term prospects are among the brightest in the region, according to the report.

“In Tanzania, that’s been helped by the government recently agreeing a deal with major energy firms to develop an LNG project,” it added

GDP growth in Zambia and Côte d’Ivoire will be held back by a period of fiscal tightening, as well as the threat of poor cocoa harvests in the latter, the report said.

It said Mozambique’s economy will be boosted in the long term by LNG exports, but public debt risks cloud the near-term outlook.