Debt defaults in Ghana, other frontier markets facing prolonged resolution – Fitch Ratings
International rating agency Fitch Ratings in a recent report has highlighted that debt defaults in frontier markets, including Ghana, are experiencing extended resolution periods compared to the past.
The UK-based firm revealed that since 2020, the median duration of Fitch-rated sovereign defaults has been 107 days, significantly longer than the 35 days recorded for all defaults since 2000.
The report noted that the Common Framework (CF), which was designed to facilitate creditor coordination, has not proven as effective as anticipated in resolving crises swiftly over the past two years. This observation underscores the complexities associated with handling defaults in frontier markets.
While the majority of frontier markets maintain Stable or Positive Outlooks, the report emphasized that they are generally in a weaker financial position compared to previous years. Approximately half of all Fitch-rated frontier markets currently hold ratings of ‘B-‘ or lower, with no Outlooks assigned below ‘B-‘.
Furthermore, these markets have witnessed an upsurge in defaults, with five sovereigns rated as ‘RD,’ including Zambia, Ghana, Sri Lanka, Belarus, and Lebanon. Notably, Lebanon and Belarus are not part of JP Morgan’s NEXGEM index.
Fitch pointed to a key factor contributing to the delayed resolution of defaults, which is weak coordination among Chinese stakeholders and China’s insistence on including multilateral debt in the restructuring process without any haircuts, merely focusing on maturity reprofiling.
However, the report indicated a shift in China’s stance, with the country no longer pushing for the inclusion of multilateral debt. The recent debt deal reached by Zambia with government creditors is cited as a positive indicator that some of China’s earlier reservations may have been addressed.
The report also highlighted that Zambia’s successful debt deal provides hope for swifter resolution of frontier markets’ sovereign restructurings in the future.
Fitch’s analysis is based on its Frontier Markets Encyclopedia, which encompasses in-house research and analysis of global frontier markets, as defined by JP Morgan’s NEXGEM Index. Frontier markets are generally considered a riskier subset of emerging market countries, characterized by lower development indicators, GDP levels, and often weaker legal and governance frameworks in comparison to more established emerging markets.
