The head of emerging markets at Oxford Economics, Gabriel Sterne, has warned of the risks associated with the debt of Angola and Mozambique. These two Portuguese-speaking African countries face a high risk of restructuring their sovereign debt. This situation arises even though both economies have recently benefited from oil and natural gas production levels and prices.
Sterne made these observations in the context of a study examining the dynamics between the International Monetary Fund (IMF) and China in debt restructuring processes. He mentioned that, despite economic improvements, both countries still face a significant risk of sovereign over-indebtedness. Interest rates on debt issues in international markets exceed 10%, making market access potentially prohibitive for these countries. A further negative shock to commodities could precipitate defaults on sovereign debt payments.
Sterne's analysis also addressed the differences between China and the IMF, both in terms of approach and in debt resolution mechanisms. In recent times, China has established itself as a dominant financial player globally, especially in Africa. However, there has been criticism of China's stance, particularly its reluctance to accept losses or defer sovereign debt payments.
The economic crisis triggered by the covid-19 pandemic exacerbated the challenges for sub-Saharan African countries, further limiting their room for fiscal manoeuvre. The growing public debt and the IMF's involvement in the region have been prominent topics.
Asked about the relationship between Angola and China, Sterne highlighted the depth of the ties between the two countries, with Angola having one of the largest proportions of debt owed to China globally. In the event of default, any debt relief from China would be crucial, but it could also be a lengthy process.
Sterne stressed the importance of countries such as Angola and Mozambique maintaining strict control of their public accounts and pursuing reforms that attract foreign investment. He advocated a prudent fiscal approach, especially considering the potentially devastating impacts of a large-scale debt crisis.
