Opinion
Me-tooism approaches payback time – Hannibal
Zambia will be a key country to watch on this front in 2014. It launched a $750 million euro bond in September 2012 that was 15 times oversubscribed and issued with a yield of 5.6%. The government denied local media reports in September 2013 that it was using the money raised to pay a spiraling public wage bill.
Of course, one advantage of external sovereign debt issuance is that governments can do what they want with the money.
Although many politicians indicate the proceeds will be put to immediate use for infrastructure projects that will boost growth, such promises are not bound into the terms of the bond.
Zambia was considering the launch of a second $1 billion euro bond in October as a way to plug its fiscal deficit, but this will do little to boost the attractiveness of the country’s first issuance. Ratings agency Fitch downgraded Zambia’s sovereign rating to B in October. There still remain lots of reasons why governments like international debt markets.
Euro bond yields of 10% are much lower than those on shorter-term domestic debt, and it can be a good way of diversifying funding sources away from concessional lending, with all its strings attached. Sovereign debt also provides a good bench- mark for domestic firms launching their own corporate bonds, thus helping expand Africa’s private sector and creating jobs.
Copyright The Africa Report 2014
