In the past decade, 17 African countries have issued a dollar-denominated bond, says The Economist. Excluding South Africa, a record $7bn worth were sold in 2014, and $6.75bn in 2015 (up from none in 2006). Governments benefited from lower interest rates than would have been available with a local-currency bond; investors were seeking high yields.
But now the “bond bonanza” is subsiding. “Africa suddenly seems less creditworthy.” Regional growth slid to 3.5% from 5% in 2014, due partly to the commodities downturn, which has also lowered state revenue. Higher US interest rates reduce the appeal of risky assets.
This backdrop has exposed the danger of borrowing in dollars. Copper-exposed Zambia’s kwacha crashed by 42% in 2015, almost doubling the cost of servicing its debt.