Fitch warns of prolonged debt resolution in frontier markets, including Ghana

Credit rating agency Fitch has raised concerns over extended debt resolution periods in frontier markets, including Ghana, stating that defaults are taking longer to resolve than in previous years.

According to the UK-based firm, the median duration of Fitch-rated sovereign defaults has stretched to 107 days since 2020, compared to 35 days for all defaults since 2000.

Fitch attributes the delays in resolving debt issues to the ineffectiveness of the Common Framework (CF), designed to facilitate creditor coordination, over the past two years.

The agency notes that despite most frontier markets being on Stable or Positive Outlook, they are generally in a weaker position than a few years ago.

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.