Christine Lagarde warns African countries against bond risks

Jun 05, 2014

Executive Director of the International Monetary Fund (IMF), Christine Lagarde, has warned African countries against the risks associated with bonds, which have been increasingly popular on the continent in recent years.

Executive Director of the International Monetary Fund (IMF), Christine Lagarde, has warned African countries against the risks associated with bonds, which have been increasingly popular on the continent in recent years.

At the"Africa Rising" summit in Maputo on 29 and 30 May, she said that even though bonds generate additional funding, they increase the vulnerability of economies, the Financial Times reports.

She believes that the debt of African countries could stifle their economies and derail the "excellent" economic conditions in the region.

In addition, investors have become more cautious and require more collateral in loan operations. Christine Lagarde warned that investors have started to demand higher interest rates for holding the debt of some African countries due to
rising fiscal deficits, citing the example of Zambia where borrowing rates rose from 5.63 percent in 2012 to 8.63 percent at the beginning of April.

In 2013, African states have raised $11 billion (€8 billion) in bond markets, against
$6 billion
in 2012. The public debt of sub-Saharan African countries will reach its highest level on the continent in ten years, at 35 percent of GDP in 2014, according to the IMF .

Despite these risks, the IMF predicts an acceleration of growth on the continent to 5.4 percent in 2014, against 4.9 percent in 2013. "We are witnessing a major transformation in Africa," concluded the IMF Director.ADNFCR-2976-ID-801725951-ADNFCR