Adnan Adams Mohammed
Ghana and other nations within the frontier markets may take longer time to resolve debt default concerns than in previous years, Fitch has predicted.
Analysis of Fitch-rated sovereign defaults, which has stretched to 107 days since 2020 compared to 35 days for all defaults since 2000, is the basis for the prediction coupled with current global economy turmoil.
Consequently, the UK based rating agency has attributed the delays in resolving debt issues to the ineffectiveness of the Common Framework (CF), designed to facilitate creditor coordination, over the past two years.
Despite most frontier markets being on Stable or Positive Outlook, they are generally in a weaker position than a few years ago, Fitch noted in its recent publication.
Half of all Fitch-rated frontier markets are currently rated ‘B-’ or less, with record-level defaults affecting five sovereigns rated ‘RD’: Zambia, Ghana, Sri Lanka, Belarus, and Lebanon (the latter two not in JP Morgan’s NEXGEM index).
The agency highlights weak coordination among Chinese stakeholders as a key factor in the prolonged resolution, emphasizing China’s demand for multilateral debt inclusion in restructuring without any haircuts, only maturity reprofiling.
However, Fitch suggests that China is now more amenable, no longer pushing for multilateral debt inclusion, and Zambia’s recent debt deal indicates potential improvements in resolving frontier markets’ sovereign restructurings more swiftly.
Fitch’s observations stem from its Frontier Markets Encyclopedia, based on in-house analysis and research on global frontier markets, following JP Morgan’s NEXGEM Index definition.
Frontier markets, considered riskier than established emerging markets, are characterised by lower development indicators, GDP levels, and often weaker legal and governance frameworks.