Top geopolitical trends and risks 2024
October 2024 TFG & Pangea-Risk Monthly Briefing
This research and analysis is provided by PANGEA-RISK and distributed in partnership with Trade Finance Global.
Read the full article here.
To download the full briefing, click here.
African governments pivot to domestic markets amid external financing constraints?
The borrowing patterns amongst African nations are shifting significantly, with governments increasingly turning to domestic markets as their access to international capital becomes more restricted.
As domestic dependence drives fiscal uncertainty, his trend is raising concerns about debt sustainability on the continent.
Debt servicing costs strain national budgets?
Sub-Saharan African countries are projected to spend $74 billion on debt servicing in 2024, compared to $17 billion in 2010. This exponential increase is forcing governments to make difficult choices between debt obligations and essential services.?
The volume of debt is a secondary concern, compared with the structural weaknesses which this burden brings to the fore. Along with the debt crisis, the continent simultaneously faces the challenge of raising $1.4 trillion in climate adaptation financing by 2030, further complicating fiscal management.
Kenya's debt challenges exemplify the broader regional trend. The country's debt-to-GDP ratio has risen from 40% in 2013 to 70% in 2023, with debt servicing now consuming 68% of fiscal revenue. Much of this debt can be attributed to mega infrastructure projects bringing insufficient returns: these investments are incompatible with Kenya’s informal sector-dominated economy. The banking sector holds 45% of the government's $41 billion domestic debt, raising further concerns about systemic risks.
Kenya’s political instability has limited the country’s capability to raise funds. Widespread anti-tax protests in July meant that Kenyan tax collection as a proportion of GDP has stagnated at 15.2%; President William Ruto’s intended Finance Bill, predicted to raise an extra $2.7 billion, has been withdrawn as a result. Such tensions have instigated investor concerns over debt default risks: between June and October, auctions of seven out of nine longer-dated Kenyan bonds were undersubscribed, while the two oversubscribed auctions were issued with an average yield of above 18%.
Egypt's situation says much about the relationship between the national banking sector and sovereign debt. While external debt has declined by 5% to $15.9 billion, domestic debt continues to rise rapidly - projected to escalate by 32.7% in the 2024/2025 fiscal year.?
领英推荐
The increasing reliance on domestic debt has, in theory, reshaped African banking sectors. It’s reduced private-sector lending, increased vulnerability to government fiscal health, and brought the need for careful liquidity management.
In spite of growing exposure to sovereign debt, the Egyptian banking sector has remained resilient. The sector holds 60% of government securities and maintains strong liquidity with loan-to-deposit ratios around 52%.
Promising policy responses: innovative financing solutions?
In Nigeria, domestic debt has reached over $70 billion, accounting for 62% of total public debt. But some recent reforms add optimism to the landscape, including a fuel import bill reduction from $600 million to $50 million monthly; the elimination of fuel subsidies, saving $3.3 billion annually; clearance of $7 billion foreign exchange backlog; and a new Dangote Refinery deal enabling Naira-denominated transactions.
In this manner, African governments are implementing various strategies to manage debt challenges:
—
The outlook for Africa's debt sustainability remains challenging. While domestic borrowing offers a temporary solution to external financing constraints, the high costs of this strategy may prove unsustainable. Success will depend on governments' ability to implement effective fiscal reforms while maintaining access to diverse funding sources. The upcoming IMF and World Bank annual meetings in October 2024 will be crucial in addressing these challenges and developing more comprehensive solutions to Africa's debt crisis.
Read the full article here.
To download the full briefing, click here.