Africa Development Bank (AfDB) president Akinwumi Adesina has warned African countries from accumulating debt from the international market that could become difficult to service as interest rates rise and fiscal pressures increase across the continent due to a commodity price slump.
Adesina was speaking during the bank’s annual meeting held at the end of May in Lusaka, Zambia.
“Indebted Africa cannot be a rising Africa,” the multilateral lenders’ president warned about mounting debt levels across Africa, FT’s This Is Africa reported.
African nations sold a record $16 billion in Eurobonds in 2014, according to Johannesburg-based Rand Merchant Bank. The AfDB estimates that $12 billion of Eurobonds were sold by African nations last year.
In total, they issued some $26 billion in international debt during the commodity supercycle of 2006 to 2014.
Sovereign debt issuance has however slowed down as an increase in U.S. interest rates pushes yields up and the continent struggles with lower commodity prices and weakening currencies.
Many currencies on the continent hit record or multi-year lows against the dollar in 2015 as governments struggled with falling revenue from their export commodities, affecting many development projects.
Adesina said that despite these challenges African economies were “not unraveling” but warned that they “must not get into a debt crisis, [having] rushed to global debt markets to issue bonds”.
In an interview with Bloomberg, the AfDB president said that many government on the continent could halt plans to issue foreign currency bonds in coming months amid expectation that U.S. policy tightening will make it more expensive to pay back those debts.
“There is a bit of cautiousness now because the interest rate is very high. So there’s not a lot of excitement to issue bonds right now,” Adesina told Bloomberg.
He said African governments will turn more to domestic market to raise funds rather than issuing bonds on foreign markets.
African governments could turn to sovereign wealth funds and pension funds, which have an estimated $330 billion to invest, to raise capital for power and transport infrastructure, Adesina said.
Source: AFK Insider
What are your thoughts? Please comment below and share this post!