By Africa Links 24
Published on 2024-02-16 14:53:27
The Eurobond market in Sub-Saharan Africa has been revived by the issuance of bonds by three countries – Cote d’Ivoire, Benin, and Kenya – after more than a year of inactivity. The three countries raised a total of around $4.8bn, with their recent Eurobonds being oversubscribed, indicating pent up investor demand. Charlie Robertson, head of macro strategy at FIM Partners, notes that the quick re-opening of the Eurobond market in sub-Saharan Africa after being shut for the whole of 2023 is stunning.
The recent issuances by Côte d’Ivoire, Benin, and Kenya signal a turning tide in the global financial conditions, making it more conducive for African nations to tap international debt markets. The impact of the Covid-19 pandemic, the conflict in Ukraine, and the surge in global interest rates on many Sub-Saharan African economies led to the loss of access to international capital markets in 2022 and 2023. However, the successful issuances show that the market is gaining more confidence in the fiscal stability of several countries in Africa and worldwide, thanks to the support by the International Monetary Fund (IMF).
Analysts predict that with global interest rate cuts expected to take effect later in 2024, more African countries will seize the opportunity to issue Eurobonds to take advantage of favorable borrowing conditions. However, it is crucial for African governments to keep a close eye on their debt ratios, as a significant portion of African countries are at risk or high risk of debt distress. The heavy reliance on debt has led to a steady increase in debt service costs, putting pressure on tax agencies to raise domestic revenue collection targets, especially among the corporate sector.
Babatunde Oladapo, executive secretary of the West African Tax Administration Forum (WATAF), highlights the need for African countries to improve their direct tax collections and mobilize revenue from the extractive sector to reduce the pressure for external borrowing. The average debt ratio in sub-Saharan Africa has doubled in just a decade, underlining the rapid pace at which public debt has grown on the continent.
It is essential for African countries to reform fiscal institutions and macroeconomic structures before seeking funding from Eurobond issuance, as some countries are relying too much on Eurobonds to refinance their existing debt. Eurobonds should be targeted to fund economic projects as foreign capital needs to be utilized to fund the budget deficit promising returns. The average maturity of African Eurobonds should be lengthened to allow for more efficient public debt management.
The resurgence in Eurobond issuance may also expose the vulnerability of local currencies in Africa, as external debt in US dollars accounts for a significant portion of public debt. This presents a challenging task for African central banks to keep their local currencies stable as their countries take on more foreign debt.
In conclusion, the recent successful Eurobond issuances by African countries demonstrate a turning tide in the global financial conditions, allowing African nations to tap into international debt markets. However, it is essential for African governments to manage their debt sustainability and improve domestic revenue collection to reduce their reliance on external borrowing.
