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Why African Governments must Consider Discontinuing Excessive Eurobond Borrowing

African governments have been on a Eurobond issuing spree, piling on debt without evaluating the exchange rate risks and the real costs of repaying the debts. The IMF has identified 17 African countries with outstanding Eurobonds as near or under debt distress. Debt servicing is consuming an average of more than 20% of government revenue, leaving very few resources for other developmental needs. All the Eurobonds issued over the past three years were spent of non-productive short-term recurring expenditure and repayment of maturing bonds. Issues by Benin, Côte d’Ivoire, Kenya, Morocco, Gabon, Ghana and Egypt raised funds to support budget deficit and bond refinancing. The majority of issued Eurobonds are of short- to medium-term duration, but their proceeds are used to finance long-term projects. In some cases, these are loss-making projects, or the funds are unaccounted for. Ethiopia’s 10 failed mega sugar projects and the Kenyan loss-making Standard Gauge Railway were both funded from Eurobonds. The continued borrowing from financial markets has led to high debt accumulation. Following the outbreak of COVID-19, some called for debt cancellation for highly indebted poor nations. The G20 and the Paris club creditors also called for multilateral debt relief to be extended to private creditors.