At the start of the year, sentiments in the Sub Saharan African (SSA) Eurobond Market were broadly positive as countries in the region reaffirmed their sustained appetite for foreign-denominated debt with the latest issuer in 2020 being Gabon and Ghana. However, the outbreak of the Covid-19 pandemic raised the macroeconomic risk of SSA countries and consequently led to widening in SSA Eurobond spreads prompting many countries to delay their planned return to the market, on the back of a higher risk premium.  

Notably, the adverse effects of the pandemic have seen countries like Zambia face an unprecedented liquidity crunch that resulted in a default, making the country the first African coronavirus-era defaulter. Nigeria, which had planned to issue a new Eurobond worth $3.3bn for budgetary purposes and to refinance existing loans have had to postpone their issue due to the high yields in the market which would increase borrowing costs especially given that the country is highly reliant on oil exports.   

Looking ahead, we expect a combination of fiscal imbalance caused by Covid-19 especially for oil-exporting countries and the penalty for the Zambian default to keep the risk premium for the region high.  As such, the international debt market will price any issue coming from the region in light of these realities. That said, we think most SSA issuers particularly Nigeria will remain reluctant to raise USD-denominated debt in light of the prevalent fiscal pressures, exchange rate concerns and widening risk premium. The implication for Nigeria largely revolves around sustained local debt capital raising to finance long term and short term obligations. Nevertheless, we expect the impact on local yields to be muted given CBN’s staunch stance on maintaining a low-interest-rate environment.