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Sub-Saharan African nations at high risk according to Maplecroft External Debt Index

09/09/2009

Liberia, Guinea-Bissau and DR Congo are amongst only six nations, out of 121, to be rated at “extreme risk” due to the levels of their external debt, according to new research, released today by global risks intelligence firm Maplecroft.

The External Debt Index (EDI) focuses on developing and emerging economies, where debt repayments can hinder wider economic development. It evaluates the risk of debt distress of 121 countries by combining six ratios as indicators of the solvency and liquidity of each economy’s external debt burden. Debt ratios compare the external debt stock, its present value and debt servicing to Gross National Income (GNI), exports and international reserves.

Liberia, Guinea-Bissau and DR Congo – which are rated extreme risk – are also part of the Highly Indebted Poor Countries initiative and may receive debt relief by creditors. Other Sub-Saharan nations that are considered for HIPC assistance – including Burundi, Central African Republic and Mauritania – are identified as high risk.

External Debt Index

Legend
Extreme risk
High risk
Medium risk
Low risk
No Data

Rank	Country	Rating
1	Liberia	Extreme
2	Latvia	Extreme
3	Guinea-Bissau	Extreme
4	Kazakhstan	Extreme
5	Samoa	Extreme

Rank	Country	Rating
6	DR Congo	Extreme
7	Burundi	High
8	Jamaica	High
9	Belize	High
10	Seychelles	High

© Maplecroft™

“External debt is part of the normal functioning of a market economy, but holds more relevance to developing nations, where debt repayments may divert resources from health and education spending. If a country’s government is perceived to be at risk of ceasing to meet its external obligations, capital inflows to all economic sectors are likely to decline sharply, as governments can issue moratoria on debt repayment and impose exchange restrictions. This has direct impact on productive investment and ultimately on economic growth.”

-Antonio Savoia, Economic Analyst at Maplecroft.

Debt sustainability is generally of greater importance in developing countries, especially low- income ones, that may suffer from chronic deficiency of domestic savings. These countries borrow from non-resident economic entities, either countries or companies, whose income exceeds their current consumption and investment requirements. However, continued borrowing can become ‘unsustainable’ and compromise the likelihood of repayment.

Aside from Sub-Saharan Africa, other regions at high risk include, South America, Central America and the Caribbean, which remain areas of debt risk for some economies, although to a lesser extent than previously. Jamaica (8), Belize (9), Grenada (15), Dominica (16) and Uruguay (17) are all considered high risk countries.

The evolution of external debt must be closely monitored in the light of the financial crisis started in the West and the subsequent global downturn. Many developing and emerging economies will find it increasingly difficult to borrow. Depending on the length of the recession and speed of the recovery of developed economies, a prolonged slowdown in the exports of low-income economies could expose them to debt distress.