Countries taking new G20 debt relief path face Ethiopia-style downgrades – Fitch

Rating agency Fitch is likely to downgrade any country that follows Ethiopia and applies to use a new debt relief program from the G20 group of major economies, one of its top analysts said on Thursday, February 11.

Fitch chopped Ethiopia’s credit score by two notches this week after Addis Ababa signaled it could be the first with an international government bond to use a new G20 Common Framework plan.

The scheme, which is open to over 70 of the world’s poorest countries, encourages their governments to defer or negotiate down their external debt as part of a wider debt relief program.

“It would be likely that any other countries applying under the G20 Common Framework would be considered along the same lines as Ethiopia,” Fitch’s head of Middle East and Africa sovereign ratings, Jan Friederich, told Reuters.

The only reason not to downgrade, he said, would be if the agency was confident that private sector creditors who hold the bonds that credit ratings apply to were not going to be affected. That seems unlikely however in the most debt-strained cases.

“There is a lot of push from the public sector (major governments and the International Monetary Fund) for countries to use these instruments which are being offered.”

“We have had interactions with the official side that showed clear frustration about the lack of private sector involvement.”

Any country that did go on to defer or write down its private sector debt would be put into default.

Along with Ethiopia, Fitch currently has the likes of Congo, Gabon, Mozambique, and Angola in the default danger zone CCC rating category. The IMF also flags Kenya, Ghana, Cameroon, and Cape Verde as at “high risk” of debt distress.

Friederich thinks there are differences though, especially Ghana and Kenya which appear particularly keen to retain access to the international capital markets.

“We are obviously looking at all the countries that are eligible for the G20 Common Framework and whether it is plausible, or even likely, that they will join.”

“But Ethiopia is a bit of specific case and the implications for ratings [more broadly] shouldn’t be exaggerated either.” – Rappler.com