Figure 1.12: Sovereign Bond Spreads in Selected Sub-Saharan African Countries

Sovereign bond spreads surged amid elevated debts triggered by fiscal supports, while declining in Zambia in the post-election period.

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Many countries in the region followed procyclical policies to consolidate public finance. This hampered their ongoing recovery process. In contrast, more financial support is warranted to narrow the unequal recovery path between rich and poor countries. As argued in the April 2021 Africa’s Pulse, speeding up vaccination rollout and fostering policies to increase investments would expedite the pace of recovery. It is uncertain that African countries will meet their vaccination target of 40 percent of the population by the end of the year. Mauritius and the Seychelles are the only countries in the continent that have attained herd immunity—with more than 60 percent of the population being fully vaccinated. South Africa follows far behind with 22 percent, while most countries have less than 5 percent of their population fully vaccinated.5 Nevertheless, Mauritius and the Seychelles have since opened their borders to tourists and economic activities have resumed, putting the countries back on the growth trajectory of the pre-pandemic era. The ongoing recovery is still weak and appears to be somewhat less sustainable since the outbreak of the third wave. It is supported by relatively weak private consumption, growing at 1.5 percent this year, amid containment measures that are still in place in many countries. Moreover, the estimated rise of 1.0 percent in gross fixed investment is insufficient to drive the region toward its full potential growth path. The recovery underway is primarily fueled by a surge in commodity prices, which is projected to plateau in 2022 and 2023. In South Africa, for example, the economy was on a faster-than-expected recovery trajectory until it was derailed by the Delta variant, causing officials to raise lockdown measures to level 4. These measures, which lasted for four weeks, slowed the pace of recovery, severely affecting many sectors of the economy. In addition, the country was affected by unrest that led to riots and looting in some provinces, in particular Kwazulu-Natal and Gauteng, causing economic losses estimated at R50 billion. Moreover, the government is set to continue the Temporary Employee/Employer Relief Scheme. Finally, wage bills were negotiated at levels that were higher than those set in the budget for this year. Amid weak growth prospects, there is little expectation that the trajectory of government debt will abate in the short to medium term. However, this is not an appropriate time to embark on a fiscal consolidation that may hinder the progress achieved so far by the country since the outbreak of the COVID-19 crisis in 2020. The

FIGURE 1.12: Sovereign Bond Spreads in Selected Sub-Saharan African Countries (basis points) 130 Normalized daily price as of 3/15/2021=100 1 1 1 7 8 9 0 1 2 0 0 0 0 0 0 60 1 1 1 1 1 1 / 2 / 2 / 2 / 2 / 2 / 2 5 5 5 5 5 / 1 / 1 / 1 / 1 / 1 / 1 3 4 5 6 7 8 Angola Ghana Mozambique Nigeria South Africa Zambia Source: Bloomberg Analytics.