The United Nations Conference on Trade and Development (UNCTAD) has warned developing countries especially in Africa facing a high risk of debt distress against issuing more Eurobonds.
According to the East African, the UN Agency through its latest trade and development report said the issuing of high-risk bonds also referred to as non-investment grade or junk bonds attracts high costs due to the risk premium investors demand.
The report stated that this has huge implications for the debt dynamics of the affected countries struggling with low economic growth rates.
UNCTAD cited Benin, Côte d’Ivoire and Kenya, who had been barred from bond markets for most of 2022 and 2023, among eight non-investment grade countries that raised $17 billion through Eurobonds in the first quarter of 2024.
On the other hand, five countries rated investment grade issued bonds for $28.5 billion.
In total, bond issuing by developing countries in the first quarter of 2024 soared to $45.5 billion a record high.
The UN Agency noted that since early 2024, sovereign bond sales for some developing countries have resumed bolstered by the expectation of interest rate cuts in major developed economies.
The report further stated that developing countries paid close to $50 billion more to their external creditors in 2022 than they received in fresh disbursements, with private creditors accounting for most of the change in the direction of net transfers.
While between 2021 and 2022 debt service to these creditors remained stable (at about $260 billion), disbursements declined by 45 percent, from over $300 billion to less than $170 billion.
The decrease in private creditor’s appetite for developing countries public debt resulted in the lowest disbursement levels since 2011.
This decline stems from various factors, including higher interest rates in developed countries, deteriorating global financial conditions and mounting concerns about debt distress in developing countries.