Wave of credit downgrades hit Africa last year

African countries saw a wave of credit downgrades last year, bucking global trend of net upgrades, according to specialty (re)insurance group Chaucer. It said there were 15 credit rating downgrades and only four upgrades to their sovereign bonds last year, while there were 20 downgrades and 48 upgrades for the rest of the world (excluding Africa) last year. “An increase in global interest rates and volatile currency markets have put a strain on many African countries,” said Chaucer. “Civil unrest and changes of government across a number of Central African states have also contributed to the credit ratings of sovereign bonds in some countries.” Over the past twelve months, African countries have accounted for 43% (15 downgrades out of 35) of global credit downgrades. Over a quarter of all downgrades of sovereign bonds (10 downgrades or 29% of the total) were in Sub-Saharan Africa alone. Sovereign debt downgrades will often further increase the borrowing costs of a country, potentially leading to a downward spiral in the economy, said Chaucer, adding that downgrades often fuel demand for political risk insurance. Jonathan Bint, senior analyst and underwriter at Chaucer, said: “Many African countries are contending with a combination of external financial pressures and internal political pressures. These challenges have driven away investors with a lower risk-appetite. The debt downgrades have also caused businesses with commercial contracts, such as infrastructure investments, to reexamine their exposure to those countries and see if they need more insurance cover to limit their downside.” Chaucer’s research revealed that four out of five downgrades were in the Global South, with Latin America and the Caribbean accounting for more than one quarter (11 downgrades or 31% of the total) of downgrades. The Middle East and North Africa (MENA) had seven downgrades (20% of the total). Ethiopia (-4), Niger (-3) and Cameroon (-2) saw the most downgrades in Sub-Saharan African. Ethiopia and Cameroon have had years of separatist conflicts, in Tigray and Ambazonia respectively, while Niger had a sudden change in government last year. “Government change creates uncertainty for businesses. This is especially true of sudden regime changes. The cancellation of contracts is one of the primary concerns businesses have with these new governments. Frequent changes in government drive up demand for contract frustration cover – especially in the most volatile regions,” said Bint. By comparison, countries in the G7 received only one downgrade last year, said Chaucer. The European Economic Area and Switzerland received just two downgrades and 12 upgrades – 23% of the total upgrades made worldwide. 52 countries saw their government bonds upgraded last year, a 33% increase on the number of upgrades made in 2022/23. Latin America and the Caribbean alone saw 19 upgrades to sovereign bonds – representing 37% of all global sovereign bond upgrades, said Chaucer. Latin America and the Caribbean’s large number of upgrades mean the region actually netted eight sovereign debt upgrades last year. Bint added: “The Global North has fared relatively well in the past year. The EEA and Switzerland have seen their sovereign bond ratings improve substantially. More sovereign debt downgrades present increased risk for businesses globally. Failure to protect themselves could leave businesses exposed.”

Wave of credit downgrades hit Africa last year

Chaucer research reveals most downgrades in Global South

Want to read this article?

Read Next

German insurers call for more regulatory efficiency and consolidation

AXA signs up to Insurance Development Forum’s resilient infrastructure plan

Continued rate softening in airline insurance market as competition increases

Specialist Risk Group acquires political violence and terrorism MGA

Europe-Asia trade conflict needs to be tackled, says Belgian industry

German insurers call for more regulatory efficiency and consolidation

AXA signs up to Insurance Development Forum’s resilient infrastructure plan

Continued rate softening in airline insurance market as competition increases

Specialist Risk Group acquires political violence and terrorism MGA

Europe-Asia trade conflict needs to be tackled, says Belgian industry

Want to read this article?

Read Next

German insurers call for more regulatory efficiency and consolidation

AXA signs up to Insurance Development Forum’s resilient infrastructure plan

Continued rate softening in airline insurance market as competition increases

Specialist Risk Group acquires political violence and terrorism MGA

Europe-Asia trade conflict needs to be tackled, says Belgian industry

Related Articles