Sub-Sahara Bonds’ Reluctant Candidates

Despite the launch of tracking indices and donor and legislative authorization, new African sovereign external debt issuers remain on the sidelines as plans encounter regular hitches. Kenya has previewed a flotation for years and the latest complications include upcoming elections, the Finance Minister’s resignation after indictment for fomenting tribal violence, and the central bank governor’s defense of monetary policy conduct in a parliamentary inquiry probing potential dereliction of duty. Inflation is stuck above 15 percent as the shilling heads toward a record low 90 to the dollar. The B-plus rating obtained in 2010 is in jeopardy with international reserves only sufficient for 3 months’ imports after a 50 percent boost in an initial $500 million IMF emergency credit line. The 5 percent GDP growth forecast will be difficult under drought conditions, and energy and transport infrastructure are in urgent need of modernization, according to the latest review despite additional funding through tax-exempt dedicated bonds aimed at both local institutional and retail buyers. Bank credit risk has heightened with dramatic interest rate swings and VAT application will be vital to a better fiscal position. The state’s stake in the stock exchange will be reduced with demutualization, but self-regulation still lags after a series of broker scandals and closures that continue to dent investor confidence. Private equity firms have decried the lack of exit through public listing under this cloud and preferred to concentrate elsewhere on the continent. Next-door Tanzania too had been in line to debut after “graduation” from Fund lending, but recently signaled desire for a precautionary facility after a period of severe weather and power outages. GDP growth is in the 6 percent range but electricity prices drove inflation to 20 percent last year. The budget deficit is at 5 percent of GDP and tight trade and tourism ties with Europe could combine with the energy crisis to deliver further economic blows.

Zambia’s copper-oriented output is up at the same clip and inflation is in single digits, but the current account surplus is down on heavy imports and FDI may be in danger with a shift in mining royalty provisions by the new administration. European-owned banks have cut export credit as “traditional concessional financing phases out,” according to the Fund. High poverty and limited formal intermediary access for small and midsize firms are lingering obstacles that could be addressed with prudent management of debt proceeds, it stresses. In a cautionary tale the lender carried out its regular review for Seychelles which sought a program after defaulting on an inaugural placement. A floating exchange rate shock was administered in its wake and economic growth is just 3 percent as the government struggles to unload the airline and other assets to meet rescheduled commercial payments absorbing island daydreams.