The IMF says that African countries may face exchange rate risks and problems repaying debts.
African governments facing falling levels of foreign aid are on a borrowing spree to pay for new roads, power stations and other infrastructure, prompting concern from many analysts that this could raise debt levels and undermine growth.
“It comes with some risks,” the director of the IMF’s African Department, Antoinette Sayeh, told Reuters in an interview on Monday.
“Whereas what it costs the countries to issue these bonds can often look lower than what they would pay on domestic borrowing … the real cost in the final analysis will also depend on the evolution of exchange rates in the course of the life of the bond issuance.”
In 2007, Ghana became the first African beneficiary of debt relief to tap international capital markets, issuing a 750 million US dollar 10-year Eurobond. Since then, previously debt-burdened countries such as Senegal, Nigeria, Zambia and Rwanda have all joined in.
“In the last two years we’ve seen new issuers – Kenya issuing the largest amount of sovereign bond this year and Cote d’Ivoire (Ivory Coast), as well also having issued this year and then Rwanda last year,” said Sayeh.
“In 2014 alone we’ve seen some 7 billion US dollars already in sovereign bond issues, which is a record high for the region,” she added.
Tanzania is in the process of securing credit rating and plans to issue a debut Eurobond worth up to 1 billion US dollars in fiscal year 2014/15. Ethiopia aims to make its first foray into the international bond markets by January, while Rwanda is planning another sovereign bond.
Sayeh said foreign investors were interested in sub-Saharan Africa’s “good economic prospects” and “sound macro-economic policies”.
“The increased possibility of issuing bonds for sub-Saharan African countries comes from the fact of lower returns on the global markets,” she said.
But local investors remained the biggest source of financing for African infrastructure projects, and there was “more room for private investments in infrastructure,” she added.
The IMF said on Oct. 7 it expects sub-Saharan Africa’s economy to grow by 5 per cent this year and accelerate to 5.8 per cent in 2015 on infrastructure investments.
(READ MORE: IMF expects regional GDP growth to surge to 5 ¾ %)