Mozambique: Government does not have enough money to respond to Cabo Delgado crisis - AIM report
Capital Economics has compared the general level of public debt in sub-Saharan Africa to “red lights flashing,” warning that the debt situation in the region is “much less stable than it looks”.
“Worries about Africa’s rising public debt have focused on Mozambique and Zambia, but the situation elsewhere is less stable than it first appears,” a note to investors from the consultancy reads.
In the analysis, which incorporates this month’s International Monetary Fund data, analyst John Ashbourne writes that “full-blown crises may not be imminent, but we think that bond yields will rise across the region” in the near future.
The level of public debt to GDP in sub-Saharan Africa is 55%, in line with the value for emerging markets in general, and only a few countries, such as Angola and Mozambique, have higher percentages. But this figure does not mirror the real dangers, Capital Economics says.
“First, debt-to-GDP ratios have skyrocketed in recent years, and past experience suggests that debt crises are associated with sudden increases in debt rather than debt reaching an arbitrary figure,” the note reads. The rise in borrowing in recent years was 12 percentage points in emerging markets generally but 27 percentage points in sub-Saharan Africa.
“In Mozambique, Angola and Zambia the ratio has risen by more than 30 percentage points,” the Capital Economics note points out.
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