African spending spree faces punishment by markets
By Duncan Miriri
KIGALI (Reuters) – African economies are securing new funds through resource finds or dollar bonds but many governments face questions over how they use the money and risk being punished by international capital markets.
The dash to build infrastructure, and pressure from citizens for swift rewards from oil and gas discoveries, have pushed some governments to loosen policy. That has led to ballooning current account deficits, rising debt and fiscal shortfalls that threaten to take the shine off otherwise positive growth stories.
"The macro-policies are out of line, whether you are looking at budget deficits, current account positions, the debt positions and so forth," he said.
As rapid economic growth cuts donor aid as a proportion of gross domestic product, governments have turned to international markets to finance capital or other spending, but their credibility among investors could quickly crumble if fiscal discipline is not instilled.
"Initially, part of the investor appetite for sub-Saharan African sovereign debt was due to the fact that there was relatively little issuance, and that investors were becoming more attuned to the 'Africa Rising' story," said Razia Khan, head of research for Africa at Standard Chartered bank in London.
"But this risks being eclipsed by the reality of fiscal management shortcomings," she said.
BALANCING ACT
Oil producers such as Angola and Nigeria are setting up sovereign wealth funds to preserve their resource revenues for the future. Investors often complain Nigeria has squandered its oil windfall. Other countries with new hydrocarbon discoveries, like Kenya and Tanzania, are also considering setting up such funds.