According to sources on the financial market, member states of the eight-nation West African economic and monetary union are having difficulty raising funds on the regional capital market owing to investors’ demand for higher interest rates in light of the region’s diminishing liquidity.
In recent weeks, bond issues in Senegal, Mali, Niger, and Burkina Faso, as well as local currency debt issues in Ivory Coast, have been canceled or postponed.
If governments are unable to access desperately needed funds in the regional market, they may be obliged to resort to the International Monetary Fund (IMF) or other, more costly sources of credit to fill the gap.
“States are undergoing a serious liquidity crisis in the regional financial market. The planned interest rates contradict market circumstances.” Isidore Tanoe, the director of Abidjan-based financial services business Majoris Financial Group, made the comment.
In contrast to the current range of 5.80% to 5.95% offered by governments, Tanoe advocated an interest rate range between 6.5% and 6.80%.
The Ivorian government was unable to issue enough bonds at an interest rate of around 5.5% in order to raise $142 million (85 billion CFA francs). It successfully reentered the capital-raising market and added an interest rate of over 6%.
According to the finance ministry, Ivory Coast anticipates generating 3,1 trillion CFA to support its 2023 budget, with the regional market contributing 2.5 trillion CFA.
A finance ministry said that the country was also contemplating obtaining bilateral assistance and funds from a consortium of banks. As he lacks clearance to speak to the press, he did not want his name to be made public.
He said, “When market conditions are unfavorable at a certain time, we withdraw and return with a stronger offer,” adding that the interest rates for the next bond offering would be adjusted to match market realities.
Liquidity
The debt auctions for Mali, Benin, Burkina Faso, and Senegal have been postponed. The finance ministry said on March 31 that Senegal has returned to the market to raise more than 201 billion CFA at an interest rate of above 6%.
According to Emmanuel Kwapong, an economist at Standard Chartered Bank in London, the liquidity conditions of commercial banks, which represent over 80% of the investor base for government assets, have deteriorated.
The regional central bank for West Africa upped its prime lending rate to 3% on March 16 to maintain inflation within the BCEAO’s target range of 1-3%. According to the data, January inflation was around 6%.
Kwapong said that the cost of funding for banks has increased due to the BCEAO’s tightening of monetary conditions to curb increasing inflationary pressures and protect FX reserves.
Kwapong said that a rise in the number of states going to the regional debt market was a consequence of the region’s deteriorating fiscal health as a result of global external shocks.
He attributed this to the “dramatic increase in sovereign demand for finance on the regional debt market,” which stretched the system.
Soualiou Fadiga, the executive director of the regional stockbrokers’ group, cautioned that in order for nations to avoid budget deficits and continue funding projects, they must seek bilateral assistance.
“The solution for the states is bilateral money, such as that provided by the IMF,” Fadiga said.
Due to the soaring rates on current foreign currency debts, Ivory Coast, Senegal, and Benin cannot afford to issue new foreign currency bonds.
Ivory Coast has already reached a deal with the IMF for a $2.6 billion loan, but Senegal will begin discussions for a new program during the IMF’s spring meetings next month.
