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Facing Tsunami Of Defaults, G-20 Agrees To Step Up Debt Help #GotBitcoin

Zambia Set To Be First African Sovereign Default In Pandemic. Facing Tsunami Of Defaults, G-20 Agrees To Step Up Debt Help #GotBitcoin

Zambia is poised to become Africa’s first sovereign default since the onset of the coronavirus pandemic after saying it won’t pay a coupon due Friday.

Holders of Zambia’s $3 billion of Eurobonds rejected a request on Friday to suspend interest payments for six months, leaving it to meet a deadline of the end of the day to pay $42.5 million interest due on its 2024 notes to avoid falling into default.

The standoff sets the tone for what will be tough restructuring negotiations with a diverse set of external creditors that Zambia owes nearly $12 billion, from pension funds in Europe to state-owned Chinese banks. It will be closely watched by other poor nations seeking debt relief, as well as fixed-income investors worried about where the next potential default may be.

“I would expect debt-restructuring talks for the Eurobonds to be very difficult and I would expect them to be protracted,” said Phillip Blackwood, an adviser to Sydbank, which holds Zambian Eurobonds. “They will need to demonstrate a willingness to secure fiscal consolidation, preferably through the International Monetary Fund. They will also need to not just try to skirt around the China debt issues, mired in profligacy and lack of transparency.”

Zambia couched its request for an interest-payment holiday from bondholders as part of the Group of 20’s so-called Debt Servicing Standstill Initiative, an agreement between rich nations to suspend interest payments owed to them by poor countries.

The government said it was asking all its foreign creditors, including private lenders, for the same relief, and would treat all equally. China Development Bank last month deferred an interest payment.

“Given our precarious fiscal position that requires us to treat all creditors pari-passu, Zambia would unfortunately have no other alternative but to accumulate arrears,” Finance Minister Bwalya Ng’andu said in a text message after bondholders formally rejected the standstill request.

Zambia will now move into negotiations with all its creditors on how to restructure as much as $12 billion in external debt. A default would give holders of all three bonds the right to demand immediate repayment. While it’s unlikely they’ll take that route, Zambia could be locked out of international capital markets for years.

“Government is strongly committed to pursue a constructive and very transparent dialog with all its creditors including bondholders to define a new cooperative and orderly process to put the debt back on a sustainable trajectory and thus be able to get out of the default situation,” Ng’andu said.

No Example

Bondholders were concerned any relief they granted would be used to service debts owed to the Chinese lenders, which account for more than a quarter of Zambia’s external liabilities. But other governments shouldn’t see Zambia as an example, said Simon Quijano-Evans, an economist at Gemcorp Capital in London.

“Zambia can’t be used as a comparison to other countries, simply because it failed to approach the IMF over several years and failed to be transparent,” he said. “Other countries like Angola and Ghana did exactly the opposite and are thus in a much better position than Zambia now.”

While the coronavirus pandemic added to Zambia’s woes, with the economy forecast to shrink for the first time since 1998, its debt problems started years earlier. The government borrowed heavily since 2012, building up nearly $12 billion in external debt and ignoring warnings from the IMF of growing debt distress risks.

The country’s $1 billion of 2024 Eurobonds pared an advance to trade 0.4% higher at 45 cents on the dollar by 2:30 p.m. in London. The bonds have lost 34% of their face value this year.

G-20 Backs New Rules To Deepen Debt Help To Poor Hit by Virus

Some Eurobond investors, including Blackwood, argue that Zambia’s debt woes only emerged in the years after it tapped international markets, and turned to China for funds. The nation sold its first dollar bond in 2012 and the last one in 2015.

“From Eurobond holders’ side, this is not about an unwillingness or otherwise to forgive debt,” said Blackwood. “It is clear to Eurobond holders that the debt problems escalated when the bilateral loans accelerated, after the Eurobonds were issued. The nature of those deals quickly caused problems for the country.”

Facing Tsunami Of Defaults, G-20 Agrees To Step Up Debt Help

The world’s top economies backed a new plan for restructuring the debt of poor countries hit by the Covid-19 pandemic to avert a messy wave of defaults.

The common framework for debt treatment was endorsed by the Group of 20 — which includes China — and the Paris Club, a grouping of mostly western government creditors, according to a G-20 statement after an extraordinary meeting of its finance ministers and central bankers.

It goes beyond the broad Debt Service Suspension Initiative, or DSSI, from earlier this year, and will deal with issues on a case-by-case basis. It’s an acknowledgment that the economic and financial damage from the novel coronavirus will linger for some time and could see more countries run into debt difficulty well into 2021.

The new set of principles, inspired by those of the Paris Club, aims to bolster the participation of China and private lenders in debt relief to more than 70 of the world’s poorest countries.

“For the first time, all the main bilateral creditors, members or non-members of the Paris Club, will coordinate the debt treatment,” said French Finance Minister Bruno Le Maire. “It will bring more transparency in the debt-relief process and involve private creditors, who will need to commit to at least comparable terms.”

While the framework currently applies only to the DSSI-eligible countries, among the world’s poorest, the U.S. is very open to extending it to middle-income nations and small island-states, a senior American official said on Friday. Such a move doesn’t yet have agreement from all countries in the G-20, the official said.

Over the last decade, China and private commercial creditors have become the biggest creditors for countries across the developing world, many of which are now reeling from the pandemic. In Zambia, bondholders and Chinese lenders blamed each other for pushing the African country to the brink of default.

Under the new rules, the need for restructuring will be based on a debt-sustainability analysis by the International Monetary Fund and World Bank. Other official creditors will also assess the need for an overhaul requested by debtor countries.

In a bid to get private creditors to participate, debtors will need to ink a memorandum of understanding with creditors that requires them to seek equal treatment from all their official and private lenders.

“The framework puts China in the center of upcoming debt restructurings, but addresses some of the Chinese concerns of equal treatment of creditors and private-sector participation in any debt relief,” said Mark Bohlund, a senior credit research analyst with REDD Intelligence.

World Bank President David Malpass has complained that neither China nor bondholders have provided enough debt relief as part of the DSSI, which runs through the first half of 2021, with the possibility for another six-month extension.

Not Enough

The new framework still may not be enough to get them both to do more this time around.

Some western governments have expressed doubts that China will fully embrace a common strategy out of fear of losing its leverage in debt renegotiations. China is the world’s largest official creditor and was owed almost 60% of the bilateral debt that the poorest nations were due to repay this year.

Without a mechanism that pushes commercial creditors to take part in future renegotiations, the G-20 deal is doomed to fail, said Tim Jones, head of policy at Jubilee Debt Campaign, a group that advocates for debt cancellation.

“This announcement falls far short of what is needed to tackle the wave of debt crises in poorer countries” Jones said in a statement.

Middle-income countries are increasingly coming under massive debt pressure, Ana Arendar, the head of the inequality campaign at charity group Oxfam GB.

“Without cancellation of public and private debt, we could see developing countries falling into default like dominoes,” Arendar said. “ Already many cannot afford doctors and nurses, with precarious chances of a quick recovery from the pandemic.”

Nigerian Central Bank Dollar Sales Fails To Stop Naira Weakening

Nigeria’s naira has fallen to its weakest level in six weeks in informal trading as central bank interventions in the official window failed to meet demand.

The local unit changed hands for 470 per dollar on Friday, the lowest since September 29, according to abokifx.com, a website that collates street rates in Lagos. The naira closed at 382.10 per dollar on the spot market, where the central bank sells limited amounts of the greenback bank to importers.

The naira has lost all ground it gained after the regulator started weekly interventions, signaling the continuous existence of pent-up demand for the greenback. The Abuja-based central bank resumed sales to licensed bureau de change operators in September after the country opened up international travel following the lifting of Covid-19 restrictions.

The money available in the official window is insufficient to meet demand, Julius Tayo-Olufemi, chief executive officer of Cephas Grace International Ltd., which imports home appliances, said by phone.

“On a monthly basis, I need about $100,000 to $150,000 and the maximum I can get at the controlled price is $20,000. So I have to sort out the remaining balance myself,” Tayo-Olufemi said.

Yearly Christmas season import bill pressure, which usually starts late November and disappears in January, may be coming early, according to Omotola Abimbola, analyst at Chapel Hill Denham.

The regulator has always increased intervention sales to money changers, but “they are a bit hampered this time around,” he said.

Updated: 11-18-2020

Africa’s First Pandemic Default Tests New Effort To Ease Debt From China

Effort to ensure that China and bondholders participate in debt restructurings could help resolve Zambia’s default.

A new framework to resolve debt crises in developing countries, meant to ensure that Chinese and private creditors share the burden of providing relief, faces a key test after Zambia became the first African nation to default during the coronavirus pandemic.

Finance ministers from the Group of 20 major economies said Nov. 13 that they had come up with a new process for restructuring the debts of the world’s poorest countries, which now owe billions of dollars to Chinese state-owned lenders and Western fund managers that snapped up their dollar-denominated bonds in the years before the pandemic.

Under this common framework, which G-20 officials lauded as a breakthrough after months of resistance from Beijing, Chinese lenders will participate in debt restructurings alongside rich, mostly Western nations. Private creditors will also be asked to provide relief on similar terms.

That is a big change from previous crises, when Western governments and multilateral lenders such as the World Bank and the International Monetary Fund were the dominant creditors to developing countries.

Hours after the new debt framework was announced, Zambia, which has borrowed heavily from China, missed a $42.5 million interest payment on some of its $3 billion of dollar-denominated bonds, tipping one of Africa’s largest copper producers into default.

Zambia says it needs a break on servicing those bonds to allow it to reach a deal with all of its creditors to bring its debts—now above 100% of gross domestic product—to a sustainable level and secure a bailout from the IMF.

“The framework was designed for the problems Zambia is now facing,” said Eric LeCompte, executive director of Jubilee USA, a nongovernmental organization that lobbies for poor-country debt relief.

Zambia has some $12 billion in external debt, including the $3 billion in international bonds and large loans from Chinese state-owned lenders such as the Export-Import Bank of China and the China Development Bank.

The government hasn’t said how much exactly it owes to Chinese lenders as a whole. Johns Hopkins University’s China-Africa Research Initiative estimates that the country has signed some $9.7 billion in loans from China, although not all of that money has been drawn.

A committee of U.S. and European bondholders that claim to own more than 40% of Zambia’s three dollar-denominated bonds said its members voted against the government’s request for a payment standstill because of a lack of transparency about Zambia’s debts and how the government intends to deal with other creditors, of which China is by far the largest. It also said the government had failed to present a credible plan for reining in its budget deficits.

“We don’t have assurances from Zambia that they are going to deal with their other commercial creditors in a similar vein,” said Kevin Daly, investment director for emerging-market debt at Aberdeen Asset Management and a member of the committee.

In an interview with Zambia’s state broadcaster Sunday, Finance Minister Bwalya Ng’andu said confidentiality agreements prevented him from disclosing the terms of the country’s loans from China. But, he said, the government had presented bondholders with its own confidentiality agreement, which, if signed, would allow it to give them more information on its Chinese borrowing.

Mr. Daly said bondholders declined to sign the agreement because the government hadn’t given assurances on all their questions, including the equal treatment of creditors.

In September, Zambia said the China Development Bank agreed to defer debt payments until April. But Mr. Ng’andu said Sunday that other Chinese lenders refused to sign similar deferral agreements as long as the government was still paying the bondholders.

“The moment I pay [the bondholders], the other creditors are going to put dynamite under my legs and blow off my legs. I’m gone and I can’t walk anymore,” he said. “If I don’t pay the bondholders, my legs will remain intact but I’ll probably have a shot in the arm, I’ll bleed from the arm.”

On Monday, the ministry said its largest Chinese lender, China Exim Bank, had agreed to suspend some $110 million in interest and principal payments due between May 1 and Dec. 31 this year.

In response to questions from The Wall Street Journal, China’s Foreign Ministry said that Beijing has been participating in an earlier G-20 initiative that allows poor countries to suspend debt payments on bilateral loans until mid-2021, and noted last week’s decision on the new framework for resolving debt crises.

It said China was committed to the equal treatment of all creditors in Zambia and elsewhere, but that multilateral lenders and private creditors also had to shoulder part of the burden.

Zambia’s default follows those of Ecuador and Argentina, which restructured their debts this spring as the pandemic and subsequent lockdowns pounded the global economy and triggered a steep selloff in emerging-market bonds. Lebanon defaulted in early March, days before the World Health Organization said rapidly expanding outbreaks of the virus had become a global pandemic.

Since then, bond markets have recovered, mostly because of ultralow interest rates set by central banks in the West. But the World Bank and the IMF have warned that other low and middle-income countries are likely to struggle to repay their debts in the coming years.

“We are not out of the woods,” Kristalina Georgieva, the IMF’s managing director, said after the common debt framework was announced. “This crisis is not over.”

Updated: 11-23-2020

Ghana Central Bank Says Options Waning as Debt Hits Four-Year High

Ghana Central Bank Says Options Waning Ghana is running out of fiscal space as its debt-to-GDP ratio reached 71% by Sept. 30, the highest in nearly four years, following early attempts to cushion the population from the impact of the coronavirus pandemic, its central bank said Monday.

The ratio grew to its highest since Nov. 2016, as the state subsidized electricity and power bills, while also providing loans to small businesses, Governor Ernest Addison told journalists after a policy rate announcement in Accra, the capital.

“The important point is whether the government will have enough fiscal space to continue providing support in 2021,” Addison said. “We are approaching the limit of what the government can do without trying to mobilize domestic resources.”

The pandemic response deepened the debt woes of Africa’s top gold producer. President Nana Akufo-Addo’s administration had already spent almost 23 billion cedis ($4 billion) on a financial sector cleanup since 2017, while also starting to address energy sector debt of more than 10 billion cedis.

After reporting its first cases of the virus in March, the West African nation responded to the health crisis with more than 3 billion cedis in unplanned spending.

The government is planning to raise $5 billion on international capital markets to support its spending plan for next year. The budget deficit is set to decline to 8.3% of GDP in 2021, from an expected 11.4% gap by the end of this year.

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