Africa paying more for debts it accumulates; observers worried over future

Africa paying more for debts it accumulates; observers worried over future

- Recent reports show that African countries are currently paying more for debts accumulated

- It has been established that such countries are paying more for debts between 2018 and 2019 than was paid from 2003 to 2016

- Of all the countries in Africa, only South Africa's bond market is considered to be developed, active and liquid

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There is renewed concern about the sustainability of Africa’s debts as fresh evidence shows that African countries are paying more for debts accumulated.

Information available shows that much of the debt is being accumulated through foreign currency-denominated Eurobonds which were issued on international financial markets.

YEN.com.gh understands that the total value of Eurobonds issued between 2018 and 2019 exceeded the value of all bonds sold between 2003 and 2016.

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A report by qz.com shows that African governments are currently issuing and listing their Eurobonds.

These are available on recognized international debt markets such as the London and the Irish Stock Exchanges.

African governments, it has been revealed, may not venture offshore if there were active and liquid domestic bond markets.

Apart from the South African market, bond markets in the continent appear to be largely underdeveloped, inactive and illiquid secondary markets.

This, it has been gathered, makes it difficult to attract local participation of international investors.

The International Monetary Fund (IMF) has argued that African countries are issuing Eurobonds, with about half of them at or near levels of distress.

It went on to say that African governments are increasing debts without analyzing the risks associated with the exchange rate as well as the real costs of repaying the debts.

Two key elements are often taken into consideration with the assessment of a country’s debt burden.

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One of them has been identified as the level of debt based on the ratio of debt to gross domestic product (GDP), while the other is the cost of servicing the debt-interest payments.

Apart from Cape Verde, Djibouti, Congo and Mozambique, every African country has debt-to-GDP ratio averaging 60%; this is the threshold recommended by the IMF’s and African Monetary Co-operation Programme.

In other news, Nigeria’s economy recorded a growth of 2.3% in the fourth quarter of the year 2019, YEN.com.gh has learned.

This is higher than the 1.9% growth rate recorded in the year 2018 in the same period. The data, released by the National Bureau of Statistics(NBS), indicated that the overall Gross Domestic Product (GDP) was in line with predictions released by the African Development Bank (AfDB).

Information available shows that it also comes at a time when President Muhammadu Buhari implemented an Economic Recovery and Growth Plan.

Business Insider reports that in the fourth quarter of the year 2019, Nigeria’s GDP grew by 2.55% (year-on-year) in real terms.

This is the highest growth rate recorded since the 2016 recession. This represents the highest growth the country has experienced since the 2016 depression.

The NBS report showed that the 2.55% growth rate is 0.17% more than the 2018 rate of 2.38% and an increase of 0.27% points when compared with the third quarter of 2019.

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Source: Yen

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