Moody’s: Higher debt burdens raise debt sustainability concerns in W/A

Togo, and to some extent Ghana and Nigeria, are among those facing risks to debt sustainability. Mali and Niger are vulnerable to shocks.

Senegal and Ivory Coast have the highest external debt to private creditors but have the best financial management capacity

Government debt burdens have grown in all rated ECOWAS (Economic Community of West African States) countries, offsetting much of the debt relief from the early 2000s and raising concerns over debt sustainability, Moody’s Investors Service said in a report yesterday.

“Debt burdens in the ECOWAS are now almost double what they were in 2010 and are unlikely to fall, raising concerns about debt sustainability –  with potentially significant economic and social costs,” said Lucie Villa, a Moody’s Vice President – Senior Credit Officer and the report’s co-author.

Risks to debt sustainability include adverse debt dynamics, weak financeability and debt management capacity. These factors are particularly present in Togo (B3 stable), and to some extent Ghana (B3 positive) and Nigeria (B2 negative).

More highly rated Senegal (Ba3 stable) and Côte d’Ivoire (Ba3 stable) have the highest external debt owed to private creditors as a share of GDP, but have the best financial management capacity.

Debt burdens are rising across the region, increasing debt sustainability concerns. Many of those that benefitted from the heavily indebted poor countries (HIPC) initiative have lost the benefit of their debt relief, with debt/GDP back to or exceeding levels reached before HIPC.

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Debt burdens are now almost double what they were in 2010 and unlikely to fall. While improvements in the strength of institutions and the economies’ shock-absorption capacity mean that ECOWAS sovereigns can, in general, sustain higher debt burdens than 10 years ago, pockets of heightened vulnerability exist. » Risks to debt sustainability include adverse debt dynamics, weak financeability and debt management capacity. These are present in Togo (B3 stable), Ghana (B3 positive) and Nigeria (B2 negative), for various reasons. A rapid rise in debt, weak financeability and financial management in Togo point to some risks to debt sustainability; nevertheless, absent any shocks, we expect debt dynamics to improve and help reduce debt ratios.

Ghana is among those that face the highest risks to debt sustainability from exposure to currency shocks and weak financeability – even though the positive outlook on its rating reflects our view that institutional improvements will help government manage potential shocks and avoid a sharp and self-fulfilling increase in debt.

For some sovereigns in the region, improved institutional strength and shock-absorption capacity bolster their ability to sustain higher debt burdens compared with 10 years ago. For instance, the positive outlook on Ghana’s rating reflects our view that institutional improvements will help the government manage potential shocks and avoid a sharp and self-fulfilling increase in debt

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Although Nigeria’s debt levels are low, debt dynamics are becoming adverse and fiscal metrics are deteriorating while debt management capacity remains weak. Others, including Mali (B3 stable) and Niger (B3 stable), have more sustainable debt burdens under our central scenarios – but they remain vulnerable to shocks that could materially increase their debt burdens and undermine their debt sustainability. More highly rated Senegal (Ba3 stable) and Côte d’Ivoire (Ba3 stable) have the highest external debt owed to private creditors as a share of GDP, but have the best financial management capacity.

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