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Trump win pushes up future interest costs for African governments

Yields on African countries’ debts have increased by more than for countries such as the US and UK

Photo: Gage Skidmore/Wikimedia

Photo: Gage Skidmore/Wikimedia

Calculations by the Jubilee Debt Campaign have shown that the future borrowing costs of African governments have risen across the board in the last week, following Donald Trump winning the US Presidential election. For 12 African countries with publicly listed bonds looked at by Jubilee Debt Campaign, yields have increased on all their debts. The average increase is by 0.9 percentage points. A new debt crisis has already begun in some developing countries following the fall in commodity prices since 2014.

Most dramatic is Zambia where yields have increased from 9.5% to 11%. The IMF is currently in negotiations with Zambia on a new set of loans to pay the interest to private speculators. In Cote d’Ivoire, yields have increased from 5.7% to 6.9%, Ghana from 8.7% to 9.5% and Angola from 10.4% to 11.5%.

Current yields on publicly listed debts for various African countries

Current yields on publicly listed external dollar debts for various African governments

These changes do not immediately increase the interest rates paid by governments. However, they reflect the likely interest rate on borrowing in the future. Yields on government debt across the world have increased since Trump’s victory, but the increase for African governments is the most dramatic. For example, the yield on US government 10 year bonds has increased by 0.3 percentage points, from 1.9% to 2.2%, whilst for the UK government it is by 0.2 percentage points, from 1.2% to 1.4%.

Tim Jones, economist at the Jubilee Debt Campaign said:

“There is an expectation that Trump’s policies will cause inflation to rise which would lead to increases in the US Federal Reserve interest rates. In addition, speculators have taken money out of government debt to buy shares in banks and energy companies which are expected to gain from Trump’s financial and environmental deregulation. Finally, the fact developing country debt yields, and African countries in particular, have risen the most shows how vulnerable they are to global financial changes.”

Other developing countries have also seen yields increase. The cost for Indonesia of borrowing for 10 years has risen from 7.3% to 7.8%. Mexico has seen yields on its 10-year debt rise from 6.2% to 7.1%.

Moreover, US dollar interest rate increases cause the US dollar to rise further in value. On Wednesday it hit its highest value for 13-years against a basket of currencies. This rise in the value of the dollar increases the relative size of debt payments for other governments because their revenue is in local currencies, but external debts are usually in dollars.

Tim Jones continued:

“Many developing countries have already been hit by the fall in the price of their commodity exports. An increase in US interest rates and the value of the US dollar will only make this worse. A new debt crisis has already begun for some countries, such as Ghana and Mozambique. Rather than bailing lenders out, private speculators need to be made to share in the costs of this crisis by reducing debt payments.”

Country Yield on 8 November 2016 Yield on 17 November 2016
Angola 10.4% 11.5%
Cameroon 7.9% 8.6%
Congo, Republic 8.7% 9.1%
Cote d’Ivoire 5.7% 6.9%
Ethiopia 7.8% 8.4%
Gabon 8.7% 9.7%
Ghana 8.7% 9.5%
Kenya 6.9% 7.7%
Namibia 4.7% 5.2%
Nigeria 6.9% 7.8%
Senegal 5.8% 6.5%
Zambia 9.5% 11%


Countries

Angola, Cameroon, Congo, Republic Of, Cote D'Ivoire, Ethiopia, Gabon, Ghana, Indonesia, Kenya, Mexico, Namibia, Nigeria, Senegal, United Kingdom, United States, Zambia
Jubilee Debt Campaign is a company limited by guarantee, number 3201959
Jubilee Debt Campaign's registered charity number is 1055675