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African Eurobond Investors Face $10 Billion Losses – ODI

African Eurobond Investors Face $10 Billion Losses – ODI

By Paul Wallace | From Bloomberg

Investors in African Eurobonds face losses of more than $10 billion because of the weakness of currencies on the continent, according to a report published on Wednesday by U.K. research center the Overseas Development Institute.

“Today’s economic environment in sub-Saharan Africa is similar to the boom that preceded the bust in the debt crises in Africa and Asia in the 90s when western governments and banks wrote off billions of pounds of debt,” Judith Tyson, ODI research fellow and author of the report, said in a press release. “Billions of dollars are again at stake, not to mention the financial stability of the region.”

The exchange-rate risk of sovereign bonds sold by sub-Saharan African governments between 2013 and 2014 threatens losses of $10.8 billion, equivalent to 1.1 percent of the region’s gross domestic product, the ODI said. While Eurobonds are typically issued and repaid in dollars, the depreciation of local currencies in 2014 makes it harder for governments to repay them, the ODI said.

African issuers sold at least $16 billion of international bonds last year, a record. Countries such as Ghana, Zambia, Ethiopia and Senegal took advantage of historically low borrowing costs in dollars to fund infrastructure from roads to power projects.

Only four of the 24 African currencies tracked by Bloomberg appreciated against the dollar last year. Ghana’s cedi was the worst performer, falling 26 percent, while Zambia’s kwacha dropped 13 percent.

Read more at Bloomberg