IMF Deputy Chief worried large chunk of Eurobonds is used to service debt

The Deputy Division Chief of Regional Studies in the African Department at the International Monetary Fund, Wenjie Chen, is advising Sub-Saharan African countries including Ghana to channel borrowed funds into the productive sectors of the economy that yield returns.

According to her, that is a reassuring factor.

For instance, if they [Sub-Saharan African countries] were to put the money into infrastructure spending, to social spending, health, education, that then, will reap the benefits for the country. And by that I mean, for instance, in terms of economic activity that it can stimulate, which then, in return, will generate a larger tax return for the economy. Those funds, in turn, can repay the debt, and then put into other investments that, in return, yield more growth”, she disclosed in an interview.

She expressed worry that a large chunk of borrowed funds including Eurobonds are being used to repay debt.

And not all, but several countries are indeed facing rollover risks in terms of these large repayments that are coming up. Now, given the high borrowing costs and still elevated in the future to come that we see and the liquidity shortfalls”.

She urged SSA countries to look domestically and raise the funds, through boosting domestic revenue mobilization.

On Eurobonds, she said issuing the debt instruments is a great thing, because it opens up to more investors, additional financing sources and diversifying the financing sources.

She however warned of the foreign exchange risks that the Eurobonds come with.

Source: Businessweekghana