African Nations Urged to Boost Local Debt Markets Amid Global Funding Shift
African countries face growing challenges in accessing international finance as global economic uncertainty and tightening monetary policies restrict foreign capital flows. Moody's Investors Service has highlighted the urgent need for these nations to develop robust local debt markets denominated in their own currencies to mitigate risks associated with reliance on external funding.
As global financial conditions tighten, foreign investors have become more cautious about exposure to emerging markets, including many African economies. This shift has led to a decline in capital inflows, leaving governments increasingly vulnerable to sudden stops or reversals in funding. Moody's global head of sovereign risk emphasised that liquid and deep domestic debt markets can provide a crucial buffer, enabling governments to raise funds without depending heavily on foreign creditors.
Currently, many African countries issue debt primarily in foreign currencies such as the US dollar or euro, exposing them to exchange rate risk. Currency depreciation against these hard currencies can dramatically increase debt servicing costs, placing pressure on public finances. Developing local currency bond markets would allow governments to borrow in their own currency, reducing this vulnerability and helping to stabilise fiscal positions.
ADVERTISEMENT
Several African countries have already taken steps to expand their local debt markets. Nigeria, Kenya, and South Africa stand out with relatively more developed government bond markets, which have helped these economies absorb shocks from external capital volatility. However, the scale and liquidity of these markets remain limited compared to advanced economies, making them less effective as shock absorbers.
Moody's report stresses that broadening the investor base is critical. This includes attracting domestic institutional investors such as pension funds, insurance companies, and mutual funds, which have longer-term investment horizons and are less likely to withdraw capital abruptly. Expanding participation by local investors can deepen the market and enhance price discovery, increasing market efficiency.
Policy reforms to improve the regulatory environment, market infrastructure, and transparency are essential to build investor confidence in local markets. Strengthening legal frameworks for debt issuance and enforcement, improving settlement systems, and enhancing credit rating capabilities will facilitate greater market participation. Governments must also maintain prudent fiscal management to ensure debt sustainability and investor trust.
The trend toward tightening global financial conditions reflects actions by major central banks to raise interest rates and normalise monetary policy after years of ultra-loose settings. This environment reduces appetite for higher-risk emerging market debt, especially those with significant external borrowing and weaker fiscal fundamentals. African nations with large current account deficits and high foreign currency debt are most at risk of capital flight and currency pressures.
At the same time, China's retrenchment from aggressive lending in Africa is altering traditional funding patterns. The decline in Chinese infrastructure loans and project financing has created financing gaps that are not easily replaced by private capital. Local debt markets can offer a more sustainable alternative, giving governments greater control over funding costs and maturities.
ADVERTISEMENT
International financial institutions have also been encouraging African governments to tap domestic markets and enhance fiscal resilience. The International Monetary Fund and World Bank support capacity-building initiatives to develop sovereign bond markets and encourage the issuance of domestic debt instruments. These efforts align with the broader agenda of promoting sustainable debt practices and reducing vulnerability to external shocks.
Despite the push for local currency debt markets, several challenges remain. Many African economies are characterised by low levels of financial inclusion, limited investor sophistication, and constrained savings pools. These factors restrict demand for government bonds and complicate efforts to build deep, liquid markets.
Inflation volatility in some countries adds further complexity. Investors may demand higher yields to compensate for inflation risk, raising borrowing costs. Maintaining price stability is therefore a key complementary objective to developing local debt markets, ensuring that bonds remain attractive and sustainable.
The broader economic context also matters. African economies face structural hurdles including reliance on commodity exports, limited industrial diversification, and infrastructural deficits. Strengthening economic fundamentals through reforms aimed at boosting growth and reducing fiscal deficits will enhance creditworthiness and market access.
The rise of regional capital markets integration presents another avenue to bolster liquidity and investor interest. Initiatives such as the African Continental Free Trade Area and the establishment of pan-African bond indices could foster cross-border investment, broadening the market beyond national boundaries.
As sovereign risk dynamics evolve, credit rating agencies are recalibrating their assessments to account for greater exposure to domestic debt and currency risks. Moody's and others acknowledge that while local debt markets reduce foreign exchange exposure, they introduce new vulnerabilities related to domestic economic conditions and market depth. Continuous monitoring and adaptive policy responses will be necessary to balance these risks.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Middle East Eye
7 hours ago
- Middle East Eye
Trade unions from 36 countries protest against Saudi Arabia's treatment of migrant workers
Trade unions from 36 countries have filed a complaint with the International Labour Organization (ILO) over the treatment of migrant labourers in Saudi Arabia, The Guardian has reported. The joint submission called for a 'commission of inquiry' into labour rights in the kingdom - one of the most important tools available to the UN agency. 'This is a call for immediate action towards genuine, inclusive and collaborative reform,' said Luc Triangle, the secretary-general of the International Trade Union Confederation. 'We cannot tolerate another death of a migrant worker in Saudi Arabia. We cannot remain silent while migrant workers, especially construction and domestic workers, continue to face fundamental rights violations. This has to stop now.' The complaint comes as development and construction ramp up in Saudi Arabia ahead of its hosting the 2034 Fifa World Cup. New MEE newsletter: Jerusalem Dispatch Sign up to get the latest insights and analysis on Israel-Palestine, alongside Turkey Unpacked and other MEE newsletters This week, the kingdom signed a cooperation agreement with the ILO on the sidelines of its annual conference in Geneva. Under the agreement, which initially lasts for two years, Riyadh is expected to align its labour laws with international standards. The agreement reportedly includes measures to support fair recruitment, make it easier for labourers to switch jobs, introduce a minimum wage and include migrant workers on workers' representative committees. It also includes commitments to improve compensation for workers who are injured or killed. However, trade unionists from several delegations think the reforms did not go far enough. Unions from the UK, Japan, Canada, Australia and 13 African countries were among those to sign the complaint, which was fiercely opposed by the Saudis. 'Africans go to Saudi Arabia looking for life but come back in coffins,' said Omar Osman, the general secretary of the Federation of Somali Trade Unions and one of the signatories. The complaint, seen by The Guardian, lists several cases of alleged forced labour, human trafficking, wage theft, and sexual and physical abuse of migrant labourers. Migrant worker deaths Last month, a report by Human Rights Watch (HRW) found that scores of migrant workers in Saudi Arabia had died in horrific, avoidable workplace incidents - including falls from buildings, electrocutions and decapitations. Saudi Arabia relies heavily on foreign labour to power its economy. Of a population of around 34 million, over 13 million are migrants, primarily from South and Southeast Asia and parts of Africa, according to the UN Department of Economic and Social Affairs. These workers dominate sectors such as construction, domestic work, sanitation and hospitality - often performing some of the most dangerous and low-paid jobs in the country. 'Electrocuted, decapitated': Migrant worker deaths in Saudi Arabia revealed in HRW report Read More » Despite existing Saudi laws mandating occupational safety measures and employer accountability, the HRW report revealed systemic failures in protecting workers, investigating deaths and ensuring compensation. The report also documented disturbing patterns of deaths being misclassified as 'natural causes', even in cases where the fatal injuries occurred on worksites. HRW interviewed the families of 31 deceased workers, mostly from Bangladesh, India and Nepal, who died in Saudi Arabia between the ages of 23 and 52. In several cases, families reported they were left in the dark about the cause and circumstances of their relatives' deaths. Employers often delayed or refused to repatriate remains and personal belongings and, in some cases, pressured families to accept burial in Saudi Arabia in exchange for modest financial compensation. In one case, the son of a Bangladeshi man who died of electrocution said the employer made compensation conditional on agreeing to bury his father in Saudi Arabia. The family refused and had to borrow over $4,000 to repatriate the body, only to receive less compensation than their incurred debt. Most migrant workers enter Saudi Arabia under the kafala sponsorship system, which legally binds a worker's immigration status to a specific employer. Despite recent reforms that allowed some workers to change jobs without employer consent, many are still vulnerable to exploitation, forced labour, wage theft and harsh working conditions. A New York Times report in March found that at least 274 Kenyan workers, most of whom were women, had died in Saudi Arabia over the past five years despite being a young workforce in non-dangerous jobs. Large numbers of Ugandan workers had also died in the Gulf kingdom during that time. Every year, thousands of Ugandan and Kenyan women travel to Saudi Arabia to take up domestic jobs such as housekeepers and nannies. Many return with stories of unpaid wages, detention, beatings, starvation and sexual assault. Others return in coffins. Among those who died, autopsies often revealed evidence of trauma such as burns and electric shocks. However, Saudi authorities recorded the deaths as natural causes.
The National
15 hours ago
- The National
Bond market is sending out distress signals, but investors don't need to panic
Investors tend to fixate on the stock market, but there are times when the bond market cries out for our attention, too. That's definitely the case today, because it's sending out distress signals. The global bond market is actually the bigger of the two, worth about $140 trillion, compared with $115 trillion for equities. And when bond yields surge, the ripple effects can shape everything from mortgage rates to stock valuations and government solvency. In recent weeks, yields on long-dated US government bonds, or Treasuries, have jumped to their highest levels since the global financial crisis. Investors are demanding more interest to lend to governments awash with debt, at a time when sticky inflation deters central bankers from slashing interest rates. Tom Stevenson, investment director at Fidelity International, said the US 30-year Treasury yield climbed above 5 per cent in May as markets recoiled at US President Donald Trump's new tax cut proposals, known as the 'Big, Beautiful Bill'. That package alone could add more than $3 trillion to US debt, which already stands at a mountainous $36 trillion. It could lift the country's debt-to-GDP ratio from about 100 per cent today to 125 per cent within a decade. 'The prospect of higher borrowing and unsustainable debt servicing costs led Moody's to downgrade the US prized triple-A credit rating. Debt interest payments, already at $880 billion a year, will rise further as a result,' Mr Stevenson says. He sees trouble ahead. 'The US has lived beyond its means thanks to strong global demand for its debt. But confidence is beginning to wane, with investors seeking to diversify elsewhere.' Vijay Valecha, chief investment officer at Century Financial in Dubai, says a similar story is unfolding elsewhere. In Japan, 30-year yields have climbed towards 3 per cent following the weakest demand in a decade. In the UK, 30-year gilt yields briefly touched 5.55 per cent as government borrowing soared. Yet at the same time, stock markets have rallied after Mr Trump paused his 'liberation day' trade tariffs on April 9, Mr Valecha says. 'US markets enjoyed a V-shaped recovery with the S&P 500 up almost 20 per cent, while the tech-focused Nasdaq rose 27 per cent.' The UK's FTSE 100 and Japan's Nikkei 225 are both trading above key technical levels, he adds. But investors shouldn't assume this will continue. 'Global government debt is rising fast, pushing 95 per cent of GDP," he says. "If this continues, debt could reach 100 per cent of GDP by the end of the decade.' Global inflation is also proving sticky, driving up interest rates and yields. That's a warning shot for stock markets. Mr Valecha flags up something called the 'equity risk premium', which measures the difference between what investors can expect from shares and the yield from lower-risk bonds. 'As bond yields rise that gap gets smaller, it becomes harder to justify paying high prices for shares, especially when valuations are already stretched.' The equity rally may continue but it will be bumpier, and careful stock picking is required, Mr Valecha says. Near-zero interest rates Near-zero interest rates allowed governments to borrow freely in the past decade, but that era is now over, says Charu Chanana, chief investment strategist at Saxo Bank. 'Rising sovereign debt is arguably one of the most underappreciated long-term risks to global financial stability.' If interest rates remain elevated, this could crowd out public investment, put pressure on social spending and, ultimately, reduce economic dynamism, she says. High debt levels also suppress growth, which fuels more borrowing in a vicious cycle. 'The fiscal space to respond to future crises is being eroded,' Ms Chanana says. The risk is amplified in emerging markets, many of which have borrowed heavily in US dollars, making debt harder to service if their currencies weaken. Corporate earnings remain resilient but the equity rally may have run its course, she says. 'Further equity upside may require either stronger earnings growth or a clearer path towards monetary easing.' While cash and bonds offer short-term comfort, don't overdo the flight to safety. Ms Chanana warns that higher inflation will chip away at the real return. 'Increased exposure to cash or bonds may not be sufficient to preserve or grow wealth over the long term.' Instead, she favours a diversified approach. 'Equities, particularly those tied to structural themes like AI and digital infrastructure, continue to offer compelling growth opportunities.' While gold has stood bright as a hedge against inflation and economic and political volatility, it also has one big drawback as yields rise – it doesn't pay interest or dividends. Higher yields increase the opportunity cost of holding gold, but that hasn't deterred investors yet, with the price up 26 per cent this year. 'Gold still plays a strategic role as a hedge against systemic risk, currency debasement and geopolitical uncertainty,' Ms Chanana says. Should investors turn back to bonds? Tony Hallside, chief executive of Dubai-based brokers STP Partners, agrees that gold still has a role to play in a diversified portfolio but suggests rebalancing towards high-quality fixed income. 'Investment-grade bonds, especially with shorter durations, provide attractive yields while preserving capital. They offer stability and liquidity when markets turn turbulent." 'That doesn't mean abandon stocks entirely, but it does mean being more selective." Amol Shitole, head of fixed income at Mashreq Capital, sees an opportunity in emerging market bonds, particularly in the Middle East and North Africa. Mena bonds continue to enjoy haven status due to their superior credit quality, he says. 'We favour the UAE, Qatar, Oman and Morocco for their strong fundamentals and ongoing structural reforms.' He says Mashreq remains underweight on Saudi Arabia and Bahrain, citing fiscal risks and tight valuations. He doesn't expect US yields to spiral uncontrollably. 'We believe US Treasuries will continue to benefit from flight-to-safety demand during slowdowns or uncertainty.' In equities, he sees opportunities in small caps and value stocks, particularly as higher interest rates pressure growth sectors. 'A well-diversified multi-asset portfolio including equities, fixed income, gold and alternatives can yield attractive returns of 7 per cent to 7.5 per cent a year.' There is little prospect of a return to ultra-low interest rates, but at least this means bond investors are being rewarded gain. Equity investors must be more careful, but strong companies still offer solid long-term value. Gold remains a valid hedge. As ever, diversification is the best defence.
Middle East Eye
a day ago
- Middle East Eye
'We don't want them': Trump issues latest iteration of controversial travel ban
US President Donald Trump instituted a long-anticipated travel ban on Thursday, prohibiting US entry to citizens from 12 countries and restricting the entry of citizens from seven others. Trump's proclamation 'fully' restricts nationals from largely African and Muslim countries, including Afghanistan, Chad, the Republic of the Congo, Equatorial Guinea, Eritrea, Haiti, Iran, Libya, Somalia, Sudan, Yemen, and Myanmar from entering the US. It also partially restricts nationals from Burundi, Cuba, Laos, Sierra Leone, Togo, Turkmenistan, and Venezuela. In a video he released on social media on Thursday, Trump said the Colorado attack had 'underscored the extreme dangers posed by foreign nationals who are not properly vetted'. The suspect in the attack is alleged to be an Egyptian national who overstayed his visa and previously lived in Kuwait. Rumors had been circulating for months about what countries would be on the list after Trump signed an executive order on 20 January and gave the US State Department 60 days to identify countries for which 'vetting and screening information is so deficient as to warrant a partial or full suspension on the admission of nationals from those countries'. New MEE newsletter: Jerusalem Dispatch Sign up to get the latest insights and analysis on Israel-Palestine, alongside Turkey Unpacked and other MEE newsletters According to the Trump administration, the ban is designed to 'protect its citizens from aliens who intend to commit terrorist attacks, threaten our national security, espouse hateful ideology, or otherwise exploit the immigration laws for malevolent purposes'. How does the ban work? The order goes into effect at midnight on 9 June, and both the full and partial bans apply to foreign nationals from the designated countries who are outside the country on 9 June and do not have a valid visa as of that day. The proclamation outlines that no visas issued before that date will be revoked. Citizens from countries facing a complete ban will not be issued any non-immigrant or immigrant visas. Countries facing a partial restriction will see the suspension of entry of all immigrants and the following temporary visas: B-1, B-2, B-1/B-2, F, M, and J visas. The order has made room for exceptions including the following: any lawful permanent resident of the United States; dual nationals; diplomats travelling on valid non-immigrant visas; athletes or members of an athletic team and immediate relatives; travelling for the World Cup, the Olympics or other major sporting event; immediate family immigrant visas; adoptions; Afghan special immigrant visas; special immigrant visas for United States government employees; immigrant visas for ethnic and religious minorities facing persecution in Iran. 'Unecessary and ideologically motivated' Nihad Awad, national executive director of the Muslim civil rights organisation, the Council on American-Islamic Relations, said in a statement released on Wednesday that Trump's new travel ban 'is overbroad, unnecessary and ideologically motivated'. 'Are they troublemakers?': Trump questions why Harvard has so many international students Read More » He criticised the targeting of mostly Muslim and African nations and said it raised 'the specter of more vague free speech restrictions'. "Automatically banning students, workers, tourists, and other citizens of these targeted nations from coming to the United States will not make our nation safer." He added that the screening tests being undertaken by the US government were "vague" and could easily be abused to ban immigrants based on religion or political activism. He said the new travel ban risks separating families, deprives students of educational opportunities, blocks patients from accessing unique medical treatment, and would create a chilling effect on travellers. 'Automatically banning anyone based on their nationality or vague allegations of 'hostile attitudes' to American culture or policies undermines our nation's values,' he added. World reacts Like Trump's controversial tariffs, the latest iteration of the travel ban has continued to ruffle feathers and wear leaders down. Venezuela's interior minister, Diosdado Cabello, lambasted the Trump administration as 'bad people' on state television, saying 'they are supremacists who think they own the world and persecute our people for no reason". "The truth is being in the United States is a big risk for anybody, not just for Venezuelans," he added. Meanwhile, the ban prompted Chad's president, Mahamat Deby, to issue a reciprocal ban on US citizens. In a statement, he said, 'Chad has no planes to offer, no billions of dollars to give, but Chad has its dignity and pride'. Republic of Congo government spokesman Thierry Moungalla told a news conference he thought it was 'a misunderstanding'. 'Congo is not a terrorist country, does not harbour any terrorists, is not known to have a terrorist inclination,' he said. The Somali ambassador to the US, Dahir Hassan Abdi, took a more resigned tone. He said in a statement that Mogadishu 'values its longstanding relationship with the United States. [Somalia] stands ready to engage in dialogue to address the concerns raised'. Trump's history with travel bans Six of the countries on the new list were on different iterations of Trump's 2017 predominantly Muslim travel ban list, and continue to remain on the banned list. These countries include Iran, Libya, Somalia, Sudan, Yemen, and Venezuela. Trump upset national sensibilities when he issued a "Muslim" travel ban within a week of taking office during his first term in January 2017. The countries on his original list were seven Muslim-majority countries: Iran, Iraq, Libya, Somalia, Sudan, Syria and Yemen. The order also indefinitely suspended the entry of Syrian refugees This order affected individuals regardless of their immigration status, including green card holders and those with employment-based visas. Travellers with valid visas and permanent residency were denied entry. Following large-scale protests and chaos at airports, courts pushed back on the ban, leading to the first ban being blocked by a temporary restraining order in Washington v. Trump in February 2017. US judge blocks Trump order banning foreign students at Harvard University Read More » Three more iterations of the ban followed, leading to numerous lawsuits being filed in federal court against the Trump administration. One of the most successful lawsuits was Trump v Hawaii, a lawsuit on behalf of the state of Hawaii, where the Muslim Association of Hawaii, Dr Ismail Elshikh, and two John Doe plaintiffs challenged the various iterations of the ban. After Trump issued the second iteration of the ban in March 2017, the Hawaii district court issued a nationwide injunction against the second version of the ban, which was affirmed by the Ninth Circuit Court of Appeals on 12 June 2017. The Court prohibited the government from enforcing the ban against foreign nationals who possess a 'bona fide relationship' with a person or entity in the US. But the government interpreted that ruling narrowly, issuing new guidance that would still ban 'grandparents, grandchildren, aunts, uncles, nieces, nephews, cousins, brothers-in-law and sisters-in-law, fiancés, and any other 'extended' family members' on the theory that they are not 'close' family. In July 2017, the Hawaii district court ruled that this definition 'represents the antithesis of common sense' and prevented the government from enforcing it. After a government appeal, the Ninth Circuit largely left the district court's order relating to travel, in place, while staying part of the order relating to refugees. Trump issued a third iteration of the ban in September 2017, and the lawsuit returned to the Hawaii district court. The court ruled that it violated the Immigration and Nationality Act, the Ninth Circuit affirmed, but the Supreme Court permitted Muslim Ban 3.0 to go into effect as appeals progressed. In January 2018, the Supreme Court agreed to hear the case and eventually reversed the grant of a preliminary injunction after a 5–4 decision. The third iteration of the ban imposed full visa restrictions on citizens from eight nations, six of them predominantly Muslim. These countries included Chad, Iran, Libya, North Korea, Syria, Venezuela, Yemen, and Somalia. Iranian nationals were allowed to enter under valid student (F and M) and exchange visitor (J) visas, although such individuals were subject to 'enhanced screening and vetting requirements'. In January 2020, a fourth travel ban was instituted and included additional countries such as Eritrea, Kyrgyzstan, Myanmar, Nigeria, Sudan, and Tanzania, which restricted applications to immigrants from those countries but did not restrict entry by non-immigrants.
