Small African Economies Face Rising Debt Risk, Warns Lazard
Amidst a respite in sovereign defaults, financial advisor Lazard cautions that smaller economies, particularly in Africa, face elevated risks of debt distress in the medium term.
Impact of Global Events and Domestic Crises
The pandemic, Ukraine war, and domestic turmoil have triggered defaults in nations like Argentina, Ecuador, Ethiopia, Ghana, Sri Lanka, and Zambia since 2020. While investors anticipate no further sovereign defaults in 2025, credit indicators for "frontier markets" (riskier, smaller countries) suggest a structural deterioration, especially in Africa.
US Interest Rates and Refinancing Challenges
Thomas Lambert of Lazard's sovereign advisory team highlights the modest refinancing obligations for fragile nations this year, but warns of potential challenges between 2026-28 when larger repayments loom. High US interest rates exacerbate refinancing difficulties, reducing the "distance to default" for many countries.
Frontier Markets and the G20 Common Framework
Amidst concerns over the return of trade tensions, emerging market investors have转向ed to frontier markets. The reprieve in potential defaults presents an opportunity to reassess the G20 Common Framework, a debt relief initiative for heavily indebted countries, which has faced criticism for slow restructuring.