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Rising African debt to backfire on unwise issuers

Tuesday, March 10, 2015

Significance

This typifies a growing debt problem facing Sub-Saharan African (SSA) states borrowing in dollars: as local currencies depreciate on softening commodity prices, repayment costs soar -- threatening added costs of up to 10.8 billion dollars, according to the Overseas Development Institute.

Impacts

  • Currency effects on debt repayments will differ considerably between oil-producers inside the CFA franc zone and those outside, eg, Nigeria.
  • SSA exchange rate risks posed by foreign-denominated sovereign bonds would be mitigated by future currency appreciation.
  • Weak debt management capacity in SSA treasuries and lack of parliamentary budget offices reduces pressures that may restrain borrowing.
  • Absent temporary consumption spikes, states are unlikely to reap lasting economic rewards where debt is used to fund recurrent expenditure.
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