IMF boss cautions Kenya, others over excessive bonds issue

NAIROBI, KENYA: The International Monetary Fund (IMF) has warned African States against rushing to issue Eurobonds, saying they may face exchange rate risks and problems repaying debts.

African governments facing falling levels of foreign aid are on a borrowing spree to pay for new roads, power stations and other infrastructure, prompting concern from many analysts that this could raise debt levels and undermine growth.

“It comes with some risks,” the director of the IMF’s African Department, Antoinette Sayeh, told Reuters in an interview on Monday.

“Whereas what it costs the countries to issue these bonds can often look lower than what they would pay on domestic borrowing... the real cost in the final analysis will also depend on the evolution of exchange rates in the course of the life of the bond issuance.”

In 2007, Ghana became the first African beneficiary of debt relief to tap international capital markets, issuing a $750 million 10-year Eurobond. Since then, previously debt-burdened countries such as Senegal, Nigeria, Zambia and Rwanda have all joined in.

“In the last two years we’ve seen new issuers - Kenya issuing the largest amount of sovereign bond this year and Cote d’Ivoire (Ivory Coast), as well also having issued this year and then Rwanda last year,” said Sayeh. “In 2014 alone we’ve seen some $7 billion already in sovereign bond issues, which is a record high for the region,” she added.

Credit rating

Tanzania is in the process of securing credit rating and has disclosed plans to issue a debut Eurobond worth up to $1 billion in fiscal year 2014/15. Ethiopia aims to make its first foray into the international bond markets by January, while Rwanda is planning another sovereign bond.

Rwanda’s Finance Minister Claver Gatete told Reuters on Monday in an interview on the sidelines of a conference in London that the country still plans to launch another Eurobond to fund infrastructure projects in the fast-growing economy. However, the size and timing of it is still being worked out. The landlocked African nation of 11 million people has been attracting a steady stream of investors and firms drawn by a small but growing market, and its debut $400 million Eurobond in 2013 was heavily oversubscribed.

“We want to get back to the market, but we are still working on the proper projects, which ones are they, what will be the size, when will be the payment,” Gatete said. According to Sayeh, foreign investors were interested in sub-Saharan Africa’s “good economic prospects” and “sound macro-economic policies”.

“The increased possibility of issuing bonds for sub-Saharan African countries comes from the fact of lower returns on the global markets,” she said. But local investors remained the biggest source of financing for African infrastructure projects, and there was “more room for private investments in infrastructure,” she added.