Options Emerge for African Nations Locked Out of Debt Markets

“The ground has shifted and cheap budget funding in frontier markets is a thing of the past,” Irmgard Erasmus, a senior economist at Oxford Economics Africa, said in a research note Tuesday. 

Central bankers have been unleashing what may prove to be the most aggressive tightening of monetary policy since the 1980s to rein in galloping inflation, fueled by choked supply chains, historic stimulus packages and Russia’s invasion of Ukraine. That’s caused a flight of capital from riskier and heavily-indebted nations with high inflation, increasing the cost of eurobond issuances to fund budget deficits. 

While forced fiscal consolidation such as spending cuts is a viable risk for some Africa nations, a number of avenues can still be explored, Erasmus said. “These encompass a greater embracing of concessional funding options, preferably underpinned by an International Monetary Fund or World Bank initiative.” 

Environmental, social and governance bonds also offer competitive pricing, while supporting governance and accountability, she said. 

Soaring yields have already persuaded Ghana and Kenya to seek alternative financing. Kenya plans to borrow about $1 billion from banks by the end of this month, after authorities halted a plan to sell eurobonds this year and Ghana has cut spending and tapped international banks for a similar amount.