IMF Insists On Prudent Use of Bond Proceeds

To ease repayment imperatives at maturity, the International Monetary Fund (IMF) has warned African governments against spending monies realised from sovereign bond issuance on frivolities.
Rather, such funds should deploy proceeds of such issues to good use in ways that will positively impact the lives of their people.
Director of African Department at IMF, Antoinette Sayeh who gave the advice during the recently concluded Annual Meetings of the World Bank/IMF in Washington DC considered sub-Saharan African countries’ increasing access to international capital markets through sovereign debt issuance as positive and said such borrowing signaled rising interest in the region by global investors.
She said the interest was buoyed by Africa’s progress in implementing better macroeconomic policies, diversification of financing sources and stimulated debt issuance by the private sector.
Businessweek reported Sayeh to have said that countries have to be prudent on how they take advantage of bond issuance, to allow for the obligations of repayments and exchange risk, while also putting sovereign bond pro­ceeds to good use through high-quality investments that will help finance subsequent repayment.
The advice is coming on the heels of concerns that the $1billion sovereign bond is­sued by the Nigerian Federal Government two years ago to boost the country’s power infrastructure has failed to produce the needed impetus to stabilize supply.
According to her, sustaining growth in sub-Saharan Africa would require a pro­active resolution of structural bottlenecks that have impeded growth over the years includ­ing infrastructure gaps and poor business climate.
Earlier in a briefing, IMF Managing Director, Christine Lagarde, had hinted that the Fund was continuing the process of reviewing the conditions for bond issuance by sovereign states to allow for inclusive growth in respective jurisdictions.
But the IMF director told a news conference that avoiding the emergence of macroeconomic imbalances such as excessive fiscal and external current account deficits would also underpin expansion, noting that the challenge for managers of the African countries economy will be striking the right balance between scaling up investment in infrastructure and other development objectives while avoiding an unsustainable public debt build-up.
She said the underlying picture for sub-Saharan Africa remains favourable, with the region’s economy expected to expand by five per cent in 2014 and 5 ¾ per cent in 2015, particularly as most sub-Saharan African economies are enjoying strong growth, driven by investment in infrastructure, buoyant services sectors, and strong agricultural production.
In her view, despite these challenges, sub-Saharan Africa is expected to continue to be the second fastest growing region in the world, behind emerging and developing Asia, although this positive outlook coexists with a dire situation in Guinea, Liberia, and Sierra Leone, where the Ebola outbreak continues to spread unabated as well as insurgency in the North East of Nigeria.
Sayeh pointed out that beyond the rising number of deaths, suffering, and the social dislocation that it is causing, the pandemic is also causing extensive damage to the economies and institutions of these three already fragile countries, warning there are tangible negative economic spill over on neighbouring countries.
One of such spill over effect was the heavily tourist–reliant economy of The Gambia and, to a lesser extent, Senegal, which have seen a large number of booking cancelations, and some other regional transportation hubs such as Ghana and Kenya may also see transitory declines in airline and hotel activity.
In other parts of the continent, Sayeh also pointed to a small number of countries where economic activity is facing headwinds from home-grown policy challenges, particularly in South Africa, where growth remains lacklustre due to electricity bottle­necks, weak product market competitiveness, and difficult industrial relations.
In a few other countries, including Ghana, and until recently Zambia, large macroeconomic imbalances have resulted in pressures on the ex­change rate and inflation.

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