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Gabon’s sovereign spreads have remained relatively high in recent years, hovering around stressed and distressed territories since mid-2022, despite high oil prices. This paper investigates the determinants of sovereign spreads in 50 EMDEs, using a fixed effects panel model and leverages the results to draw lessons for improving funding costs in Gabon. The analysis finds that weak governance, high public debt, weak economic performance, a poor government payment track record, and social vulnerabilities are the main factors that increase Gabon’s spreads. Strengthening policies in these areas—by bringing indicators for government effectiveness, regulatory quality, and the fiscal position to the median for sovereigns rated BBB by Fitch, as well as clearing external government arrears—could help reduce spreads by at least 500 bp and save at least 0.4 percent of GDP in annual interest costs (⅓ of the interest bill for external debt).
This paper evaluates the progression of the sovereign ESG landscape since the initial comprehensive assessment of the sector in 2021 in “Demystifying Sovereign ESG” by conducting a comparative analysis of the current sovereign ESG methodologies of commercial ESG providers. The 2021 study articulated the distinct nature of the sovereign ESG segment from corporate ESG and documented fundamental shortcomings in sovereign ESG methodologies, such as the “ingrained income bias”, lack of consensus on environmental performance, and conflation of risk and sustainability objectives. While sovereign ESG methodologies have evolved since 2021, the significant correlation across providers of aggregate, S, and G scores persist. In response to market demand there has been a notable shift towards greater focus on the E pillar against growing heterogeneity on climate and environmental considerations across ESG providers. The findings underscore the disparity between perceptions and realities in implementing a sustainability strategy within the sovereign debt asset class. This necessitates a reevaluation of sovereign ESG scoring methodologies towards outcome-based metrics and urges a globally coordinated effort to establish robust sustainability measurement frameworks.