Sub-Saharan Africa (SSA) has emerged as one of the most active regions in issuing Eurobonds, successfully raising over USD 100 billion from international investors since 2006.
Eurobonds, denominated in foreign currency and sold to investors outside the issuer’s home country, have provided SSA countries with various advantages, including diversifying sources of financing, extending debt maturity profiles, and supporting developmental needs.
However, the region faces notable risks such as currency fluctuations, refinancing pressures, and challenges in maintaining debt sustainability.
Global instabilities and the COVID-19 pandemic have significantly disrupted the economic and fiscal outlook of SSA, resulting in a sharp contraction of output, deteriorating public finances, and increased debt vulnerabilities.
The World Bank estimates a deceleration in GDP growth for SSA to 2.9% in 2023, attributed to slowed growth in major economies like Nigeria, South Africa, and Angola, averaging 1.8% for the year.
The IMF Economic Outlook for Sub-Saharan Africa warns that many countries in the region are on the brink of debt distress, with debt-to-GDP ratios stabilizing at 60.0%, primarily due to increased spending, corruption, and reduced revenue collection.
These adverse developments have hindered SSA’s access to the Eurobond market, which has been virtually closed since mid-2022. Global inflation and tighter monetary policies have raised borrowing costs for SSA countries, placing greater pressure on exchange rates.
No country was able to issue a Eurobond throughout 2023, except for Gabon, which issued a debt swap through a USD 0.5 billion blue bond. Additionally, several SSA countries have encountered difficulties in servicing existing Eurobonds, resulting in missed payments, rating downgrades, and debt restructurings. Notably, Zambia, Ghana, and Ethiopia defaulted on their Eurobonds in recent years.
In the case of Kenya, its public debt to GDP ratio increased to 70.1% in 2023 from 66.7% in 2022, driven partly by a persistent fiscal deficit and limited access to international markets. Global credit rating agencies downgraded Kenya’s credit outlook due to a weakening liquidity position, hindering its capacity to service debt.
Despite these challenges, some SSA countries, including Kenya, Nigeria, Ghana, Senegal, and Angola, plan to tap the Eurobond market in 2024, aiming for a combined target of about USD 12 billion. The motivations and prospects for these issuances vary based on macroeconomic fundamentals, fiscal positions, debt profiles, and reform agendas.
While some SSA countries consider accessing the Eurobond market in 2024, they must balance financing needs with debt sustainability challenges amid global economic uncertainties.
Unfavorable credit ratings, rising debt levels, and subdued investor confidence in the region will continue to exert pressure on the International Eurobond market. Debt repayment pressures remain a pressing concern, emphasizing the need for the region to focus on achieving sustainable foreign debt levels by reducing spending, addressing corruption, and exploring alternative sources of financing such as diaspora and tourism.
SSA countries are advised to carefully assess the costs and benefits of issuing Eurobonds, pursue sound macroeconomic policies and structural reforms, and prioritize growth prospects and debt sustainability.
