Politics
More African Countries on Hunt for Eurobonds
Joseph Stiglitz, a Nobel laureate in economics and Columbia University professor, questions in a blog for the Guardian this new trend for “private sector borrowing” by developing countries. The sovereign Eurobonds carry significantly higher borrowing costs than concessional debt, Stiglitz notes. He worries about “excessive borrowing” over the long term, which benefits only the banks because they “take their fees up front.” African countries, Stiglitz believes, should have in place a “comprehensive debt-management structure”; they should also invest wisely and refrain from borrowing further in order to repay their debts.
Whether the “rash of borrowing by sub-Saharan African governments is sustainable over the medium-to-long term is open to question,” echoes IMF’s Sy. If the low-interest-rate environment changes, it could reduce investors’ appetite for the bonds and “economic growth may not continue, making it harder for countries to service their loans,” he adds.
Political instability is something else that could put a wrench in the whole process, lowering economic growth and increasing interest rates. It is no coincidence that countries such as Ghana, Kenya and Nigeria that have had political stability in recent years have been able to, or intend to, sell bonds of at least $1 billion.
A change in the political situation in such a country, resulting in bad governance, could drive back potential bonds buyers, says Larry Seruma, chief investment officer of Nile Capital Management, which invests in Africa. And for Sy, developing well-functioning domestic bond markets to attract domestic and foreign savings over time is the way to go.
Copyright Africa Renewal Online 2014
