ABSA Group Limited chief executive officer Daniel Mminele has warned African countries to be wary of participation in debt relief schemes as this could lead to them being downgraded and restrict their participation in the financial markets post-COVID-19.

And Mminele says the financial market position will continue to tighten sharply and affect liquidity conditions across some key markets in Africa following the negative economic outlook amid the COVID-19 pandemic.

Speaking during an online discussion moderated by Boston Consulting Group managing director and senior partner Adam Ikdal, last week, under the theme: “Africa’s economist headwinds: How are the continents business leaders responding”, Mminele cautioned that African countries needed to be careful by ensuring that their decisions did not affect their ability to participate in the financial markets in the long-term.

“I think it also worth noting that while private sector appetite may have softened on the back of a worsening macroeconomic backdrop, and many emerging market countries, of course, have received emergency funding for the likes of the IMF (International Monetary Fund) and the World Bank to ramp up the humanitarian response and stand the economic fall-out. But apart from creating this fiscal space to allow countries to respond to these challenges, we have seen some multilateral and bilateral agreements in the sovereign space for the lower income countries resulting in some payment holidays and even debt relief in some. I know that there have been calls made for the private sector creditors to join in and, of course, in that vein, we have noted some comments from major rating agencies that imply that participation in various debt relief schemes could lead to adverse action i.e. some rating downgrades could ensue and that could end up restricting market access for some countries and constrain the much-needed post-COVID finance. And I guess why some of the proposals may, indeed, create this fiscal space temporarily to fight the pandemic, they just need to be considered very carefully so as not to inadvertently lead to challenges down the line,” Mminele said.

He added that the current negative economic outlook had also seen sub-Saharan African economies face a Balance of Payments (BoP) risk as the deteriorating global sentiment contributed to falling commodity prices.

“As a result of this negative economic outlook, we are seeing financial market conditions tighten quite sharply and affecting liquidity conditions across some of our key markets. And, of course, as has been said before, many African countries entered this crisis with already significantly weakened balance sheets limiting some of the effects that we’ve seen in terms of monetary policy wasting or financial sector policies that were meant to offset part of this tightening and financial conditions. We have around 20 African countries that are either at just close to debt distress levels and in the medium-term fiscal consolidation in some of the traditional donor countries. What that (means), for instance, eight budgets in which some of our African countries rely on quite heavily will also be affected. And sub-Saharan Africa also faces a Balance of Payments risk as the deteriorating global sentiment overall would have contributed to falling commodity prices,” said Mminele.

“With the (Coronavirus) virus not having been brought under control across, certainly all the markets that we operate in, the outlook remains uncertain and down-side risks still quite considerable. With that said, we are expecting to see growth hold up reasonably well in countries, such as Ghana, Kenya, Uganda and Tanzania with expectations for more pronounced slowdowns when it comes to Botswana, Mauritius, Zambia and the Seychelles and, of course, with markets that rely heavily on sectors, such as tourism and leisure and commodity exports bearing the most of the brunt. In our largest market in South Africa, our most recent forecast, for instance, is for a contraction of 9.7 per cent in GDP. And as most of you will be well aware, the unique challenges that we face as a continent, which complicate our responses when compared to advanced countries include obviously health system capacity, the strong density and strong organization, less efficient Internet connectivity and, of course, constrained fiscal resources.”

Speaking during the same discussion, Ecobank group chief executive officer Ade Adeyemi reiterated the need for countries to be wary of their debt restructuring options as this would have a long-term negative effect on their access to finance.

“Every debt that is lent in the private sector is the savings of somebody else, and every time there is a default in terms of debt, it means that for the long-term you can no longer approach that market to be able to get money. It is difficult to scale-up donations to begin to create wealth to our continent. So, we need to be careful that we do not solve short-term problems with long-term absence from the market,” advised Adeyemi.

Meanwhile, Afreximbank president and chairman of the board Professor Benedict Oramah observed that progress had been made in the creation of the Africa Continental Free Trade Area (AfCTA) and expressed optimism that the task to increase intra-Africa trade to 30 per cent from the current 17 per cent will be done before the targeted time.