debt Archives - African Financial & Economic Data

26 Apr

State Firms’ Debt May Threaten Financial Stability, Central Bank Says

The inability of South African state-owned companies to roll over debt could threaten the nation’s financial stability and ultimately result in more credit-rating downgrades, according to the central bank.

Governance issues at state companies, rising contingent liabilities and inadequate liquidity could add pressure to government finances through the increased use of guarantees, the Reserve Bank said in its six-monthly Financial Stability Review released in Pretoria on Wednesday.

“Financial stability centers around the ability of state-owned enterprises to roll over debt and achieve financial consolidation,” the central bank said. “Should state-owned enterprises fail to roll over debt, the government would be liable and might not be able to honor such debt.”

Ratings companies have flagged state firms’ finances as a concern in recent years. While Moody’s Investors Service kept the nation’s credit rating at investment grade and changed the outlook to stable from negative last month, it warned if risks at these companies materialize and increase the government’s debt burden, it could lead to downgrades.

Government guarantees to state companies are at more than 450 billion rand ($36 billion), according to data from the National Treasury. The state’s exposure to this increased to 64.5 percent in the past fiscal year from 54.4 percent as companies drew on the guarantees.

Power utility Eskom Holdings SOC Ltd. is the single biggest recipient of guarantees at 221 billion rand, followed by the Road Accident Fund at 189 billion rand, the central bank said. South African Airways said Tuesday it needs 5 billion rand from the government to cover immediate costs and warned it may struggle to make debt repayments due next year.

The rand, which has declined 0.5 percent versus the U.S. dollar this year, was little changed on Thursday morning at 12.4435 per dollar.

Source: https://www.bloomberg.com/news/articles/2018-04-25/state-firms-debt-may-threaten-financial-stability-sarb-says

13 Apr

Kenya’s $3.5 Billion Road Project Delayed by Debt Concerns

Kenya’s second-biggest infrastructure project since independence five decades ago, a $3.5 billion inter-city expressway, will be delayed amid concerns by lawmakers that East Africa’s largest economy is taking on too much debt, the company building it said.

While Kenya is ramping up construction of much-needed infrastructure to underpin economic growth, the cost of the mega projects, mostly financed by Chinese loans, has stirred concern that the debt is unsustainable for the $71 billion economy.

The nation’s debt could rise to 58 percent of gross domestic product by the end of June, from 40.6 percent in the 2011-12 fiscal year, according to World Bank estimates.

Construction of the 473-kilometer (294-mile) four-lane highway between the capital, Nairobi, and the second-biggest city, Mombasa, will be undertaken by San Francisco-based Bechtel Group Inc., which has arranged commercial loans for Kenya to undertake the project. The country will not seek concessional financing or a public-private partnership, according to the company.

The Kenya National Highways Authority wasn’t aware of any delay, public relations officer Charles Njogu said by phone. “The agreement has, however, to be scrutinized by lawmakers because of its size,” he said. Transport and Infrastructure Secretary James Macharia didn’t pick calls to his mobile phone nor respond to a text message seeking comment.

The financing arrangements for the toll road are now expected to be in place by end-June, the initial sod-turning target, and construction work will now begin in the second half of the year, said Andrew Patterson, Bechtel’s regional president for Africa.

“This is looking to be slipping,” he said in emailed responses to questions on Monday. “The debt level is a big concern and we are working to find the right balance with Treasury in regards to the financing.”

Kenya’s biggest infrastructure project since independence from Britain in 1963 is an $8.7 billion standard-gauge railway from Mombasa to the Ugandan border that’s being built under China’s flagship Belt and Road program.

To read the full article, click here.

21 Mar

Mozambique to Face Off With Bondholders as Debt Talks Start

Mozambique is set to meet foreign creditors to discuss almost $2 billion of debt in London Tuesday in what will mark the start of formal restructuring negotiations, more than a year after the southern African nation defaulted.

Investors including Credit Suisse Group AG and UBS Group AG have little idea what will be discussed. Mozambique first missed coupon payments on its $727 million Eurobond due 2023 in January last year and has had almost no contact with the holders since then.

“We don’t really have any set expectations,” said Phillip Blackwood, managing director at EM Quest Ltd., which advises Sydbank A/S on its emerging-market assets, including Mozambican bonds. “There are many possibilities,” from Mozambique saying it can’t restart servicing external debts for several years to it resuming coupon payments, he said.

Blackwood will be among those attending a presentation by officials including Finance Minister Adriano Maleiane from 2 p.m. at the offices of law firm White & Case, which is advising Mozambique, the only country aside from Venezuela currently in default on a Eurobond.

Lazard Freres SAS, an investment bank also advising the government, has only said that creditors will be updated on recent fiscal and macroeconomic developments and will also hear “the key elements of debt-restructuring proposals.”

Despite the default, the bonds have soared, with money managers betting that Mozambique’s commencement of liquefied natural gas exports around 2023 will boost one of the world’s poorest economies.

The securities have made a price return — which excludes coupon payments — of almost 30 percent in the past year, the most among sovereign debt in emerging markets, according to data compiled by Bloomberg.

The Eurobonds fell for a third-day on Tuesday, trading 0.4 percent lower at 84.8 cents on the dollar.

The presentation comes after the International Monetary Fund’s debt sustainability analysis this month, which painted a bleak picture of Mozambique’s economy and finances, suggesting it may not be in a position to start paying investors again until LNG production begins.

To read the full article, click here.

15 Dec

Africa Needs a Commodity-Price Surge to Avert Debt Crunch

Sub-Saharan Africa faces a potential debt crunch unless commodity prices improve and boost the pace of economic growth.

16 Aug

Africa: ‘Recovery Lending’ Helps Disaster-Stricken Farmers Get Back On Track

Accessing credit has long been a major hurdle for small-scale farmers in Africa, who produce some 70 percent of the continent’s food. Not only does this mean yields fall far below their full potential, but the ability of farmers to manage the increasingly frequent and severe weather shocks brought about by climate change is also greatly reduced.

However, help could be at hand. A new method of aid microfinancing, known as recovery lending, aims to give such farmers a much-needed short-term boost, especially in times of crisis.

Vision Fund International (VFI) is a project of the international NGO World Vision. It sourced a two-million-euro returnable grant from the UK’s Department for International Development to be loaned to 14,000 families in Kenya, Malawi, and Zambia after disasters so they can rebuild their lives and start generating income again.

Farmers need loans at the beginning of agricultural seasons to buy seeds, fertilisers, and other vital inputs. But as smallholders often lack title deeds or other forms of collateral, traditional banks don’t view them as viable debtors, while the rules imposed by other kinds of lenders – the return of the principal sum in full, for example – don’t always suit the seasonal economics of farming.

Charity Mati, VFI Kenya’s business development and integration manager, explained that the lender tries to tailor its repayment terms to borrowers’ needs, unlike other microfinance institutions that charge interest every month, leaving the entirety of the loaned sum due on maturity.

“Most of our clients are farmers,” Mati told IRIN. “While recovering from the El Niño rains, they were met with a second shock: the drought. We sat down with them and developed workable repayment plans, listened to their voices, and arrived at a solution,” she told IRIN.

A case study

In 2015, Alice Muthee, a smallholder farmer in Motonyi, a village nestled in Kenya’s Narok County, took out a $200 loan from a microfinance organisation and leased an acre of land with the aim of turning a good profit from growing tomatoes.

“With five mouths to feed, in addition to the pressure of educating my children, life had seemed overwhelming,” recalled Muthee. “I had had to sell livestock to meet the rising demand for finances in my family.”

Muthee believed her tomatoes would bear fruit and she would be able to repay the loan within three months.

But tomatoes are a notoriously fickle crop and certainly no match for the El Niño rains that wreaked havoc in late 2015, not only in parts of Kenya, but also in Somalia, Uganda, and Ethiopia.

“From the cost of leasing the land, labour, purchase of seedlings, and fertiliser, I ran a deficit,” Muthee told IRIN. “My several attempts to have extra money for buying pesticides failed. When the 2015 rains persisted, I watched helplessly as my tomatoes disappeared.”

Facing the daunting prospect of having to sell more livestock in order to repay her loan – the terms of which required full settlement of the principal sum in a single payment at the end of the agreed period – Muthee heard about a new kind of finance geared specifically for small-holder farmers, small businesses, and communities recovering from disaster shocks.

‘Hand up’, not ‘hand out’

Recovery lending, described as a “hand up” rather than “hand out” approach, was pioneered by VFI in the aftermath of 2013’s Typhoon Haiyan in the Philippines, with the disbursement of almost 5,000 loans with an average value of $430 designed to help people restart their lost small businesses.

According to Philip Ochola, CEO of Vision Fund Kenya, in the wake of major disasters, many microfinance institutions grow reluctant to continue extending loans because potential customers lack collateral and are seen has having little ability to make repayments.

“Credit is required most during post-disaster to help rebuild communities,” said Ochola. “Governments’ help to affected communities during disasters usually come in form of relief, which is not sustainable.

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“Preparing the communities for loans, helping them establish business and embrace agri-business is the sustainable assistance you can give to a vulnerable community.”

VFI distributes loans on the basis not of lenders’ available collateral but on an assessment of their likely ability to repay. It then provides business training to its customers.

Muthee took out a $300 recovery loan from VFI, which she invested in growing vegetables and starting a business selling second-hand clothes. She has since been able to settle her previous loan and pay her children’s school fees.

Aid, with conditions

In all, VFI has loaned out some $1.2 million in Kenya.

“DFID gave us the money not as a grant to dish out in the field, but a returnable one to be used wisely, lend it wisely, recover it, and pay back. Aid with conditions is good,” said Ochola.

“Aid is aid and human beings are human beings. If I know that appearing as poor as possible will make me continue receiving charity from you, I will always want to appear that way. But if it comes with conditions, it will help me get on my feet, stabilise, and work.”

Among the other beneficiaries is 38-year-old Chiwai Ole Taka, a father of six who lost seven cows and 10 sheep during a severe drought. He used his $300 loan to buy weak sheep and goats, which, thanks to the training that came with the loan, he fattened up and sold for a profit.

“It is not the first time that I have lost livestock to drought. It has happened before. This drought threatened to drive our community to extreme poverty,” said Chiwai, adding that he was now much better placed to meet his family’s basic needs.

Recovery lending was the result of joint research by Stewart McCulloch, global insurance director of VFI, and Professor Jerry Skees of GlobalAgRisk. The thinking behind the initiative was published in a report titled: A New Model for Disaster Preparation and Response for Microfinance Institutions.

“Recovery loans are not suitable for the highly indebted or those without viable cash-generating livelihood options; but rather for the economically active poor, including (but not limited to) those not normally targeted for humanitarian aid,” the report says. “The support to this group should have a disproportionate effect on the community’s economic recovery.”

While Alice Muthee could be a poster child for the success of recovery lending, others like Ole Peres have found themselves unable to keep up with VFI’s terms amid multuple climate shocks.

Peres, whose maize was destroyed by rains, had trouble making the $55 monthly repayments on a $300 loan.

“I obtained a second loan of $450 where I bought 10 sheep for fattening, but the drought killed five of them. With a monthly loan repayment of $40 for a 12-month period, I sold the remaining animals I had bought and ventured into maize buying and selling at a profit, but have been faced with shortage,” he said.

Peres is now in even greater debt and seeking a reduced interest rate on his loans.

The UN’s World Food Programme has flagged estimates that hunger and malnutrition could increase by up to 20 percent by 2050 if bold efforts to improve people’s ability to prepare for, respond to, and recover from climate shocks aren’t undertaken.

Recovery lending is not a panacea for all the problems African farmers face, but it is helping.

Author Note

Part of a special project that explores the impact of climate change on the food security and livelihoods of small-scale farmers in Kenya, Nigeria, Senegal and Zimbabwe

Source from IRIN

11 Aug

Zimbabwe: ‘$300m Bond Notes Also Destined for Black Hole’

Barclays Bank of Zimbabwe managing director, George Guvamatanga, says the $300 million new set of bond notes to be introduced by the central bank will not help reduce the current cash shortages.

“I think the reality of it is that if we don’t address the fundamental problems in the economy, the new bond notes will just disappear to where the other $200 million went,” he said.

“Even if we have $1 billion in United States dollars and $1 billion in bond notes, they will still continue to disappear if we don’t address the economic fundamentals and people’s rent-seeking behaviour,” Guvamatanga told delegates attending a mobile money and digital conference held in the capital last week.

His comments came a day after the Reserve Bank of Zimbabwe announced that the central bank would soon release $300 million in bond notes, under a facility funded by Egypt-based lender the African Export-Import Bank (Afreximbank), bringing the total value of bond notes in circulation to $500 million.

Market experts, however, say the increase would bring the amount of bond notes in circulation to more than half the physical United States dollars left in the country, raising fears that the bond notes are paving the way for the return of the Zimbabwe dollar, which was withdrawn in 2009 after hyperinflation rendered the local currency useless.

According to central bank statistics, Zimbabwe has about $800 million in physical United States dollars and other foreign currencies in circulation, but the International Monetary Fund estimates that the number of United States dollar notes could be as low as $600 million.

The country has been losing the greenback at an alarming rate since May 2016 to imports, illicit financial outflows and general hoarding of the currency due to its strength against depreciating regional currencies.

In an effort to stimulate production and encourage exports, the central bank late last year introduced the bond notes. The currency — pegged at par with the United States dollar — is now circulating and trading in neighbouring Botswana, Mozambique, Malawi and South Africa’s black markets.

Guvamatanga said the bond notes are “foreign currency” due to their artificial value which is equitable to the greenback and people in neighbouring countries were using them as a store of value.

“Until such a time when we can export more and have the correct pricing or valuation of money, we will continue to have cash crisis,” he added.

An NMB Bank executive, Lloyd Kazunga, concurred with Guvamatanga and said Zimbabwe is suffering a confidence crisis.

“The value of what we are purporting to be money has to be stable. The real value of bond notes must be proven in terms of how they behave when buying in the shops,” he said, giving reference to the current three-tier pricing system of real time gross settlement (RTGS) credit cards and cash.

According to the central bank, the discrepancy or mismatch between the supply and demand for foreign exchange is causing cash shortages, resulting in a thriving parallel market.

“The scarcity premiums or discounts are thus a symptom of excess demand for foreign exchange. It is, therefore, not the mediums of exchange — Unites States dollar cash, bond notes, plastic money or the RTGS — that cause premiums in the parallel markets or the multi-pricing system,” RBZ governor John Mangudya said.

“It is the disequilibrium or mismatch between the domestic quantity of money (local dollars) and the supply of foreign exchange (foreign dollars) that cause cash shortages and, resultantly, the scarcity premiums and the multi-pricing system.

“This means that the market views the intrinsic value of the dollar in Zimbabwe being lower than the foreign dollar. In coming up with solutions to cash shortages, focus should therefore be on the sources of money creation and its utilisation and not on the mediums of exchange,” the central bank chief said.

A CABS executive Godwin Kanongovere said the country’s academia must develop permanent cash solutions that are relevant to the current situation.

“The present cash crisis presents opportunities for us as a nation to utilise technology and find ways to develop appropriate applications to meet our needs,” Kanongovere said.

via allafrica

02 Aug

South Africa Should Consider Help From the IMF to Fix Its Economy

The prognosis that the South African economy is in dire straits is pretty obvious even to the untrained eye. The solution to the country’s present predicament is also pretty much understood. The International Monetary Fund (IMF) has recently produced a comprehensive view which deserves to be considered.

The IMF identifies three key ailments as causes of the country’s anaemic economic growth. These are low consumer and investor confidence and policy uncertainty.

Continued slow growth should be a matter of grave concern and ought to be treated as an emergency.

Thus far the short and medium term outlook suggests that growth outcomes will continue to be pedestrian. What is even more worrying is that over the past four years global economic growth has gained momentum, suggesting that the solution to South Africa’s vanishing growth lies in the country.

The new minister of finance, Malusi Gigaba, recently hinted that South Africa may be compelled to seek assistance from the IMF. I think the conditions are right for serious consideration of the proposal even though IMF programmes are not very popular with politicians.

There are a number of reasons for this. Requests for IMF assistance suggest that those who manage the domestic economy have failed. The fund’s programmes also come with clearly defined milestones, often described as “conditionalities”. But in most instances, these are well-intentioned and aimed at success.

It’s better to enter an IMF programme early before the situation becomes frantic. As medical doctors might argue, it is easier to deal with an ailment in the earlier stages before it reaches an advanced stage.

Desperate situation

The alternative to asking for help now would be continued poor growth outcomes which would have serious social and economic costs.

The country’s poor economic growth record spawned a number of problems.

A shrinking economy means tax revenue shortfalls. The fiscal policy response would be higher taxes or bigger budget deficits.

And then again, interest payments, the fastest growing government expenditure item, would grow even faster. Already, about 11 cents out of every rand goes into servicing public debt.

As the economy shrinks, more and more income would have to be spent on interest payments. Government’s ability to provide a social safety net in the form of social grants and other services, like education and health care, would be much more constrained. The service delivery protests that have become increasingly the norm would become even more widespread as the fiscus comes under serious strain.

Ultimately, the brigade of the unemployed would bear the brunt. Of course, the employed would also suffer because slow growth affects incomes.

Low and anaemic growth dries out consumer confidence. Job losses and subdued growth in incomes as a result of poor growth outcomes and prospects chips away at consumer confidence.

South Africa’s growth performance post 2008 has been very low. Over the past 10 years, the economy recorded an average of 2% growth per year. If this continues it will take more than 30 years to double average incomes in South Africa.

But if the country can increase growth to 5% as projected by the National Development Plan, it would take only 14 years to double average income. The higher the growth rate the shorter the time required to double incomes and bring people out of poverty.

[source from allAfrica]

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