Research Briefing | Jun 21, 2022

A fundamental change in funding beckons in Africa

The ground has shifted and cheap budget funding in frontier markets is a thing of the past. In the current climate, African nations will struggle with a narrowing investor pool amid escalating inflation and FX risks. While forced consolidation due to a funding shortfall is a viable risk, a number of funding avenues can still be explored. We believe that these encompass a greater embracing of concessional funding options, preferably underpinned by an IMF or World Bank initiative. Environmental, social & governance (ESG) bonds also offer competitive pricing while supporting governance and accountability.

What you will learn:

  • Structural weakness in the primary balance, coupled with a high interest rate burden, elevates the risk of funding gaps in the current economic climate.
  • The window for undeterred debt accumulation is rapidly closing as the wave of accommodative external liquidity retreats.
  • Appetite for local-currency debt is souring as high inflation and FX risks, such as disorderly devaluations, undermine attractiveness. 

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