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Oxford Economics: Angola and Mozambique Are the Portuguese-Speaking African Countries With the Riskiest Debt

Oxford Economics: Angola and Mozambique Are the Portuguese-Speaking African Countries With the Riskiest Debt

The director of the emerging markets department at Oxford Economics said today that Angola and Mozambique are the Portuguese-speaking African countries most at risk of a debt restructuring, which would be a very lengthy process.

In response to questions from Lusa, Gabriel Sterne said that “the two Portuguese-speaking African countries most at risk of a sovereign debt restructuring are Angola and Mozambique, despite the fact that both economies have been doing better due to the levels of production and price of oil and natural gas”.

Speaking following a report in which he analyses the influence of competition between the International Monetary Fund and China on debt restructuring processes, Gabriel Sterne says that “both countries continue to have a high risk of sovereign over-indebtedness, with interest rates [for debt issues] on the international markets above 10%, which probably means that it is too expensive for them to go to the market”.

So,” he continues, “for them to default [on sovereign debt payments], there just needs to be one more negative shock to raw materials.

Sterne’s analysis focuses on the differences between China and the IMF, not only in their approach, but also in the mechanisms for resolving the debts of the most indebted countries and the role of each of these players in the future.

In recent years, China has become an inescapable financial partner on the world stage, being one of the main investors in Africa and one of the largest creditors of African countries, which make up a large part of the world’s over-indebted countries and which are struggling to service their debt and at the same time launch the public investments needed to sustain development.

Official international creditors have criticised China’s stance in not accepting losses or postponements of sovereign debt payments, coupled with the opacity of the loan terms, the consequences of default, which go as far as severing diplomatic relations, and the fact that China lends without demanding counterparts in terms of economic or political reforms.

The need for a new global architecture, advocated by most financial players, has become more pressing in the wake of the economic crisis caused by the Covid-19 pandemic, which has wrecked economies and hit sub-Saharan African countries particularly hard, taking away even more room for budgetary manoeuvre.

The increase in these countries’ public debt and the IMF’s increasing involvement in the region were two of the consequences, after a period in which debt relief measures, such as the Debt Service Suspension Initiative (DSSI) or the Common Framework, followed one another, but were not enough in some cases, such as Zambia, the first country to go into financial default following the pandemic.

Asked about the characteristics of the relationship between Angola and China, which is one of the biggest creditors and buyers of Angolan oil, and how the ‘war’ for influence between China and the IMF could have an impact on Angola, Gabriel Sterne replied that “Angola is a particularly interesting case, since it has the highest percentage of debt to China in its total debt worldwide, which means that the links between the two countries are deep”.

However, it also means that if there is a default, debt relief from China would necessarily have to be part of the solution, which in turn means that any such process will take a long time to resolve,” he pointed out.

For countries like Angola and Mozambique, with high levels of debt in relation to revenue and the country’s own Gross Domestic Product, the analyst defended the need to keep control of public accounts and continue with reforms that attract international investors.

“The best thing, apart from being lucky with oil and gas prices, is to make an extra effort with a cautious fiscal policy to build safety cushions, since a large-scale debt crisis would be very painful,” he concluded.


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