By Ed Cropley
Reuters – With their economies floundering and currencies sinking, African states that have borrowed heavily in dollars may be slipping back into the debt trap – and ultimately default – only a decade after a far-reaching round of debt forgiveness.
Some are looking to issue more Eurobonds to refinance existing foreign currency loans, but with U.S. interest rates set to rise soon, the inevitably higher borrowing costs will do little to alleviate pressure on creaking state budgets.
Top of the list of ‘at risk’ countries, according to experts, is Ghana, the first African sovereign after South Africa to go to the international markets when it launched a debut $750 million Eurobond in 2007.
Since then, Accra has issued two more bonds of $1 billion each, helping pushing total public debt to 71 percent of gross domestic product (GDP), according to data published this week.
This compares to 50 percent in 2005, the year anti-poverty campaigners Bono and Bob Geldof persuaded rich countries to write off billions of dollars owed by Ghana and other African nations.
Ghana’s central bank governor Henry Kofi Wampah dismissed the levels of debt – half of it in dollars – as “not very dangerous” but most analysts disagree, mainly due to the decline in the West African nation’s currency.
When it launched its debut bond in 2007 with an 8.5 percent interest rate, the cedi was virtually at parity with the dollar. It is now around 4, meaning the government is in effect servicing a loan equivalent to $3 billion.
Accra agreed a $918 million, 3-year rescue package with the International Monetary Fund in April, but even if the programme works the Fund admits the government’s interest payments are likely to stabilise at an eye-watering 40 percent of revenues.
And in reality the IMF package – essentially a dollar loan with slightly …Read More
Source:: PM Newspaper