Assessing Recent Determinants of Borrowing Costs in Sub‐Saharan Africa

Abstract

This study explores macroeconomic implications of the sovereign bond rush that has been taking place in sub-Saharan Africa since 2006. The focus is on the sub-Saharan sovereign bond yields as proxies for the region's ability to raise new funds on international markets. Despite the subcontinent's tour-de-force entrance to the international bond market, this paper reveals that recent (since early 2000s) borrowing in foreign currency is not without macroeconomic risk. Empirically this paper finds that sovereign bond yields are significantly influenced by global volatility, commodity prices and global liquidity-all factors that are out of the control of the sub-Saharan economies in question. These findings suggest that portfolio repositioning by institutional investors prompted by improved growth prospects and implicit monetary policy tightening in the advanced economies or heightened risk perceptions, are likely to result in increased borrowing costs for the sub-Saharan bond issuers and affect their ability to raise funds in international markets. Furthermore, a change in borrowing costs might lead to higher debt-service costs and policy uncertainty, which in turn could lead to suboptimal investment levels and, ultimately, hinder economic development.

The stability of demand for money in the proposed Southern African Monetary Union

“…The findings show divergence across countries in the stability of money. This divergence is articulated in terms of differences in, cointegration, CUSUM (cumulative sum) and 5 The positioning of this research is also partially motivated by a growing strand of literature on the relevance of sovereign debt, financial access and alternative mechanisms of financing in Africa's development (Gevorkyan & Kvangraven, 2016;Danquah et al, 2017;Amponsah, 2017;Boamah, 2017;Kusi et al, 2017;Bayraktar & Fofack, 2018;Tchamyou, 2019aTchamyou, , 2019bBoateng et al, 2018;Kusi & Opoku-Mensah, 2018;Dafe et al, 2018;Gyeke-Dako et al, 2018;Tchamyou et al, 2019;Bokpin et al, 2018;Asongu & Odhiambo, 2019). CUSUMSQ (CUSUM squared) tests, short run and long-term determinants and error correction in event of a shock.…”

Localising sovereign debt: The rise of local currency bond markets in sub‐Saharan Africa

“…Many SSA governments, including in several ex‐HIPCs, now have access to a wider range of lenders and debt instruments (Prizzon & Mustapha, ). In the academic and policy literature, most attention has gone to the large US dollar‐denominated bonds that SSA governments have issued in international markets in recent years (see, e.g., Gevorkyan & Kvangraven, ; Mecagni et al., ; Olabisi & Stein, ; Presbitero, Ghura, Adedeji, & Njie, ; Sy, ; UNCTAD, ). That notwithstanding, it is important to highlight that in SSA marketable public debt is now increasingly issued in local currency to private domestic investors, a trend that follows emerging economies in other regions, be it with a considerable lag (Didier & Schmukler, ).…”

Nonresident holdings of domestic debt in Nigeria: Internal or external driven?

“…The empirical literature on portfolio flows in low‐income developing countries is limited. Focusing on the drivers of secondary market yields of sub‐Saharan Africa (SSA) sovereign Eurobonds over the last decade, Senga, Cassimon, and Essers (2018) find that both global push and country‐specific pull factors matter, while Gevorkyan and Kvangraven (2016) determine that global factors (such as global volatility and commodity prices) are more important drivers of sovereign bond yields, albeit in a smaller SSA sample. IMF (2015) and Presbitero, Ghura, Adedeji, and Njie (2016) study the drivers of sovereign bond issuances in developing countries and find similar evidence.…”