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n Development Finance Agenda (DEFA) - Stylized facts and lessons learned from Sub-Saharan Africa's eurobonds

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Abstract


Eurobonds have become a very important source of development finance in several Sub-Saharan African (SSA) countries in the last decade and their issues have recorded significant interest from investors, particularly US investors, to the extent that some of the bonds have been as much as eight times oversubscribed.Over 13 SSA countries, excluding South Africa, have issued Eurobonds since 2006. These bonds, usually have a ten year tenure (although they could have a 5 or even 15 year tenure), and generally range from $500million-$1.5billion. The interest rates paid for these bonds have been rising in the past two years as a result of the hike in US interest rates, the appreciation of the US dollar and the overall slowdown in the global economy. Since most of the Eurobonds are issued in dollars, it will be important for future issuers to use sound risk management techniques (particularly derivative products such as currency swaps) to hedge themselves against exchange rate risk. Countries should also adopt sound macroeconomic management, as the data shows that countries with positive macroeconomic balances borrowed at more favorable rates. Finally, the present unfavorable conditions in the global economy that will make external borrowing more expensive and the inherent risks in international currency borrowing is an opportunity for SSA countries to develop their local currency debt markets and borrow more from them, although this must be done in a prudent manner in order to avoid crowding out funds for investment in the real economy.

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/content/defa/2/1/EJC185653
2016-01-01
2016-12-05
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