Rating agency, Fitch, says debt defaults in frontier markets including Ghana have taken longer to resolve than in the past.
The UK-based firm said the median duration of Fitch-rated sovereign defaults has been 107 days since 2020, compared with 35 days for all defaults since 2000.
“The Common Framework (CF), intended to facilitate creditor coordination, has not been as effective as was hoped in resolving crises quickly over the past two years.”
“While most FMs [frontier markets] are on Stable or Positive Outlook, they are generally in a weaker position than they were a few years ago. Half of all Fitch-rated FMs are currently rated ‘B-’ or less (no Outlooks are assigned below B-), and defaults have reached record levels, with five sovereigns rated ‘RD’: Zambia, Ghana, Sri Lanka, Belarus, and Lebanon (the latter two are not in JP Morgan’s NEXGEM index)”, it stressed.
Furthermore, it said “A key reason appeared to be weak coordination among Chinese stakeholders, and China’s demands that multilateral debt is included in debt restructuring and that there are no haircuts, just maturity reprofiling”.
However, it alluded that China is no longer pushing for multilateral debt to be included and Zambia’s recent deal with government creditors indicates that some of China’s former reservations may have been addressed.
It pointed that Zambia’s debt deal gives hope that Frontier Markets sovereign restructurings could be resolved more quickly going forward.
Fitch’s Frontier markets Encyclopedia is based on in house analysis and research on global frontier markets, as defined by JP Morgan’s NEXGEM Index.
Frontier markets are generally viewed as a more risky subset of emerging market countries. They are typically less developed than the more established emerging markets, with lower human development indicators and Gross Domestic Product levels, and often poor legal and governance frameworks.