Africa

Holders of Zambia’s Eurobonds plan to reject a government request to defer payments on its sovereign dollar debt, according to four sources, pushing the country closer towards a protracted debt overhaul and possible hard default, Reuters reported. Zambia, which was struggling with mounting debts even before the coronavirus pandemic as a result of the plunge in prices for copper, its main export, has three outstanding dollar-denominated Eurobonds with a total face value of $3 billion.

Like the coronavirus crisis itself, the response of the world’s governments has been on a scale never seen before, the Financial Times reported. The IMF estimates that fiscal spending and tax cuts worldwide add up to more than $11.7tn so far, on top of a monetary policy response in which trillions of dollars have been pumped into the global financial system by the US Federal Reserve and other central banks. Old policy prescriptions have been torn up. Once the guardian of austerity, the IMF has urged countries to spend as much as possible.

South Africa’s Competition Tribunal on Friday approved a rescue deal for struggling airline Comair on condition that the carrier freezes job cuts for three years and investors allocate shares to a special purpose black empowerment vehicle, Reuters reported. Comair, which operates the British Airways franchise in South Africa and budget airline Kulula.com, was forced into a form of bankruptcy protection in May after South Africa’s coronavirus lockdown halted its operations two months earlier.

Chinese financial institutions, not only the country’s official creditors, are working to help ease the debt woes of African nations, which have worsened due to the pandemic-induced global economic downturn, Beijing’s top Africa diplomat said on Friday, Reuters reported. China, Africa’s largest creditor, has agreed to take part in a World Bank and International Monetary Fund-supported initiative to suspend debt service on official bilateral debt for poorer countries.

The South African government pledged to freeze public sector wages for the next three years to contain a yawning budget deficit but forecast that debt would peak at a higher level in a mid-term budget unveiled on Wednesday, Reuters reported. Africa’s most industrialised economy was already in recession before the COVID-19 pandemic struck, and one of the world’s strictest lockdowns has exacerbated its woes. The wage-freeze plan raises the risk of strikes by the country’s 1.3 million civil servants and follows a pledge in February by Finance Minister Tito Mboweni to curb a rising wage bill.

Zambia has reached a deal to defer debt repayments that were due this month on a loan from the China Development Bank (CDB), Zambia’s government said, without giving the size of the loan or the debt repayments that were due, Reuters reported. Zambia owed CDB roughly $391 million at the end of last year - about a tenth of the $3 billion it owes Chinese entities - according to the finance ministry. It was not clear whether the loan in question covers all of this debt or a fraction of it. China holds about a quarter of Zambia’s foreign debt.

South Africa’s government said on Thursday it wanted its national airline flying again in the first half of next year, after giving it a 10.5 billion rand ($650 million) bailout in the mid-term budget, Reuters reported. The Department of Public Enterprises (DPE) said the latest cash injection meant a restructuring plan for state-owned South African Airways (SAA), which has been in a form of bankruptcy protection since December, can now go forward.

World Bank officials have told South Africa’s government it will need to reduce its wage bill to secure a loan and that it doesn’t want the money to be used to bail out insolvent state companies, a person familiar with the situation said, Bloomberg News reported.12 Those demands have stalled negotiations on the loan that began in April, the person said, asking not to be identified because the content of the discussions have not been made public.

The proportion of emerging market high-yield companies who have seen their liquidity position weaken in September has climbed back to June’s record high, with firms in Latin America driving the overall increase, Moody’s said in a research report, Reuters reported. The reading of Moody’s emerging markets liquidity stress indicator returned to an all-time high of 25.8% last month - up 1 percentage point from August and compared with its long-term average of just under 20%, Moody’s found. A rising trend indicates upward pressure on default rates.

Sovereign default risks are on course to rise further in 2021, with Iraq, Sri Lanka, Angola and Gabon at high probability of default, say Goldman Sachs analysts, Reuters reported. Five sovereign debt defaults or distressed debt exchanges - in which investors swap their debt for new bonds, often with longer maturities and a reduced value - have already happened in 2020 in the aftermath of the COVID-19 crisis, the most in around two decades.