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Senegal cautions against private-debt relief for African nations

Senegal is one of 46 low-income nations that got a waiver on bilateral debt payments until the first half of 2021.
Image: John Wessels/AFP/Getty Images

Stronger African economies don’t need debt relief from bondholders, whose money will be crucial to help finance the recovery of the continent, according to Senegal Economy and Planning Minister Amadou Hott.

Senegal is one of 46 low-income nations that got a waiver on bilateral debt payments until the first half of 2021 under a plan by the Group of 20 major economies to ease the blow of the coronavirus pandemic. The G-20 has chided private creditors for not joining the relief drive, which has deferred $5.7 billion in interests and principal so far.

However, only a limited number of heavily indebted African countries require a moratorium from commercial creditors, Hott said in a written response to questions.

For Senegal and other economies with strong fundamentals “there is no need to force any participation from private creditors,” Hott said. “Our priority is to maintain our relationship with private investors that are key long-term partners to bridge our financing gap.”

Zambia Default

Although the continent has so far escaped widespread coronavirus transmission, the pandemic’s economic fallout has emptied fiscal coffers and threatens to sink millions back into poverty. Earlier this month, Zambia became the first country in Africa to default since the onset of the pandemic, raising fears that others may follow in the world’s poorest continent.

Rich nations should focus on bolstering concessional financing by at least $100 billion annually as well as ramping up International Monetary Fund resources to ease the fiscal strains of the region, Hott said. Saudi Arabia, which holds the presidency of the G-20 this year, expects the group to agree soon on a new issuance of IMF reserve assets, known as special drawing rights.

Despite growing pressure, money managers in New York and London have said fiduciary duties to clients prevents blanket relief to poor countries struggling with dwindling revenues amid the global downturn. About a third of the countries eligible for the moratorium declined to ask for it out of fear it could tarnish their reputation in debt markets.

“If you try to drag the private sector into this debt-relief initiative, you will have a potentially extended period of time were these countries could have lost access to private market capital,” Kevin Daly, investment director at Aberdeen Standard Investments, said at the Bloomberg Invest Africa virtual conference Tuesday. “The criticism that we have not been involved in this initiative has been overplayed.”

African countries will likely return to international debt markets in force early next year with yields falling back to pre-pandemic levels and investors showing interest, Hott said.

Ivory Coast this week became the first sub-Saharan African sovereign to tap international debt markets since the onset of the pandemic. The world’s top cocoa producer sold 1 billion euros ($1.2 billion) of 12-year bonds at a yield of 5%.

“The Ivory Coast issuance opens the door for other sub-Saharan African countries to come to the market again and move away from all the noise created by the Zambia default,” said Simon Quijano-Evans, chief economist at Gemcorp Capital LLP in London.

© 2020 Bloomberg

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