This has been compounded by a current account deficit of 14%, giving the country little room to manoeuvre. The country’s external debt, which was 26% of GDP in 2006, when it was granted partial debt relief, will rise to more than 60% by the end of this year.
The Ghanaian cedi lost 30% over the first half of the year, making it the worst-performing currency in the world as investors pulled back. The central bank has had to print money to allow the government to meet its liabilities, driving up inflation to 15%.
Zambia, whose 2012 issue launched the recent debt boom, is also in trouble. The kwacha fell by 20% in the first half of 2014, with its decline only snapped by the announcement of negotiations with the IMF. There, an election giveaway by the new government, which increased salaries, drove the fiscal deficit to 6.5% of GDP.
Falling demand for copper, which makes up the majority of the government’s revenues, meant that the current account also fell into a 2% deficit Zambia went back to the capital markets in April 2014, but investors punished it for its macroeconomic indicators, demanding a high coupon of 8.5% on its $1bn worth of 10-year bonds.
Ghana’s recent $1bn Eurobond issuance was oversubscribed with orders of up to $3bn, said Finance Minister Seth Terkper. It was at a coupon rate of 8.12%, lower than analysts had expected, given the fiscal difficulties faced by the West African producer of cocoa, gold and oil.
McDonald and Makoni, speaking before the Ghana issuance, were confident that irrespective of what happened with Ghana, appetite for African debt is there, and there to stay.
“Ghana is just one country out of 54,” Makoni said. “There are less bullish stories [like Ghana], where you have twin deficit scenario, but you have more positive and stronger credits, like the oil exporting countries, such as Nigeria, such as Gabon and Angola, and to some extent Congo-Brazzaville.
But what we will see are fluctuations in the price being paid, something reiterated by McDonald. “I think what we’re seeing is that appetite is there, but the pricing is taking into account some of the economic challenges that we are seeing coming out of some of these countries.
Definitely the pricing that Zambia has achieved was a bit more expensive that the debut bond they did in 2012.”
At a recent talk at the London School of Economics, Donald Kaberuka, head of the African Development Bank, did not seem worried by the price countries were paying nor the amount of debt they were taking on. The proof of the pudding ultimately will be in how well these countries invest the monies they are raising on capital markets.