Browsing: African governments facing mammoth

A road interchange. Many African countries are at risk of debt distress which may affect development in future.

Noteworthy is that the depreciation of local currency causes an upward revaluation of a country’s debt and also makes debt service in the foreign currency more expensive.  

“This currency-mismatch exposure explains a significant portion of the deteriorating debt dynamics shown by the decomposition analysis. Covid–19 has caused recent sharp swings in currency valuations for many countries, especially oil-exporting economies. The outlook for the debt ratios in these countries is expected to worsen simply because of the depreciation of their currencies. This issue would be less severe for countries that rely more on the domestic capital market for borrowing and on concessional debt with low-interest rates,” notes the report.