ODI [to 31 January 2015]
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Repayment of sub-Saharan Africa’s bonds threatened by escalating risks – new report
28th January, 2015
The exchange rate risk of sovereign bonds issued by governments in sub-Saharan Africa in 2013 and 2014 is threatening losses of $10.8 billion – a value equivalent 1.1% of the region’s Gross Domestic Product (GDP), says a new paper launched today by leading UK think tank the Overseas Development Institute (ODI).

This is because sovereign bonds are issued and repaid in US dollars but local currencies depreciated significantly in 2014, threatening sub-Saharan African governments’ ability to repay the bonds to investors, says Judith Tyson author of the report ‘Sub-Saharan Africa’s International Sovereign Bonds’.

Repayments are dependent on continued strong economic growth in sub-Saharan Africa but growth is now at risk of stalling as export markets slow and commodity prices – especially oil – plummet.

The irresponsible use of funds by some governments is contributing to the problem. Mozambique borrowed US$ 850 million for their national fishing industry but instead spent the money on military boats and equipment. Ghana has frittered away funds on public sector pay increases.

Other countries are simply over borrowing in relation to their GDP. These include the Seychelles, Senegal, Mozambique, and Gabon.

“Today’s economic environment in sub-Saharan Africa is similar to the boom that preceded the bust in the debt crises in Africa and Asia in the 90s when western governments and banks wrote off billions of pounds of debt. Today billions of dollars are again at stake, not to mention the financial stability of the region”, said Ms Tyson.

The ODI report suggests that governments be held more accountable for the responsible use of funds by national institutions, development agencies and investors so that funds are used wisely to continue sub-Saharan Africa’s economic boom….

– Sub-Saharan Africa International Sovereign Bonds Issuers and Investors Part 1 – pdf, 903.03k
– Sub-Saharan Africa International Sovereign Bonds Risks Part 2 – pdf, 2.89M