Nigeria and 14 other countries have been identified by the World Bank as having weak credit ratings for sovereign bonds as stated in its latest report “The Great Reversal: Prospects, Risks, and Policies in International Development Association (IDA) Countries.”
According to the report released on Monday, the list includes Cameroon, the Democratic Republic of Congo, the Republic of Congo, Ethiopia, Ghana, Lao People’s Democratic Republic, Maldives, Mali, Mozambique, Niger, Nigeria, Pakistan, Solomon Islands, Sri Lanka, and Zambia, with all of them been classified as having a significant need for support due to their lower-income status.
The report read “Among IDA countries, 15 have weak credit ratings for sovereign bonds: Cameroon, Democratic Republic of Congo, Republic of Congo, Ethiopia, Ghana, Lao People’s Democratic Republic, Maldives, Mali, Mozambique, Niger, Nigeria, Pakistan, Solomon Islands, Sri Lanka, and Zambia.
“Elevated costs of borrowing have magnified debt challenges. The synchronized increases of policy interest rates in many advanced economies in response to high inflation led to much tighter global financing conditions—with significant increases in borrowing costs for IDA countries.
“The median sovereign bond spread (the difference between the yield on U.S. Treasury securities and what a country pays on an equivalent issuance) for IDA countries rose from 4.7 percentage points in 2019 to a peak of 12.4%-points in May 2023, before falling back to 7.8%-points in March 2024.
“This contrasts with the relative stability of sovereign spreads for other EMDEs in this period. IDA countries with weak credit ratings have been particularly marginalized in global capital markets. Prohibitively high financing costs have shut out many IDA countries from international capital markets and led to minimal bond issuance over the past two years, the longest issuance drought since the global recession in 2009.”
The report revealed that hikes in interest rates in many advanced economies as a result of inflation have led to tighter global financing conditions.
This shift has led to a dramatic increase in the median sovereign bond spread for IDA countries from 4.7% in 2019 to 12.4% its peak in May 2023, before settling at 7.8% in March 2024.
The World Bank’s Deputy Chief Economist and Director of the Prospects Group, Ayhan Kose said “IDA countries have incredible potential to deliver strong, sustainable, and inclusive growth. Realizing this potential will require them to implement an ambitious set of policies centered on boosting investment.
“This means improving fiscal, monetary, and financial policy frameworks and advancing an array of structural reforms to strengthen institutions and enhance human capital.”
Recall It was recently reported that the Federal Government was enlisting investment banks such as J.P Morgan, Citi Bank, Chapel Hill Denham Standard Chartered Bank, and others as consultants for a proposed Euro bonds issuance.
However, the Debt Management Office had in a statement denied it stressing that the process would require the approval of the Federal Executive Council and the National Assembly.
