(Bloomberg) — Ivory Coast is turning to its regional debt market after postponing a planned Eurobond issue due to the high cost of borrowing in international debt markets.
The West African economy is targeting interest rates no higher than 6%, Finance Minister Adama Coulibaly said in an interview Friday in Paris. The world’s largest cocoa producer raised the euro equivalent of $1.7 billion in 12-year debt at 4.875% in November 2020.
“We cannot afford to borrow, as other countries have done, at 8% or 9%,” Coulibaly said. “Côte d’Ivoire has a good history in the financial markets. We got very good rates.
Côte d’Ivoire is rated BB- by S&P Global Inc., three levels below investment grade. Borrowing has become prohibitively expensive for junk-rated issuers in emerging markets. Nigeria borrowed at a coupon of 8.375% for a supply of $1.25 billion in March, about two percentage points more than similar debt issued six months earlier. Kenya has said it may drop a plan to sell $1 billion in Eurobonds by the end of June due to rising yields.
“As an alternative, we tap into the regional market,” he said. “It remains to be seen whether this market is deep enough to satisfy the eight countries in this zone, but for the moment, things are going well.
Côte d’Ivoire raised 41 billion CFA francs ($66.1 million) in five-year debt at 5.2% on May 17 and 28.2 billion CFA francs of the same duration and rate on last month on the government securities market of the West African Economic and Monetary Union.
Last year, the country postponed a plan to sell up to 1 billion euros ($1.06 billion) of debt, which would have been its third sale of international debt in less than a year.
“It’s an issue that we had prepared well, with an ESG label” to attract stronger demand from investors, Coulibaly said. He still plans to sell green bonds and could consider so-called blue bonds — which raise funds for environmentally friendly marine projects — if and when markets normalize, he said.
Reform of the CFA franc
The $70 billion economy is facing fiscal pressures after taking steps to rein in inflation linked to Russia’s war on Ukraine. Capping the price at the pump of fuel and other essential goods, restricting exports to neighboring countries and introducing a tax exemption on wheat are expected to cost the government 400 billion CFA francs, or 1% of the gross domestic product, in lost revenue, Coulibaly said.
The peg of the CFA franc to the euro has helped ease inflationary pressures, with annual price increases of 4.5% at the end of this year, he said. “When you look at the level of inflation in West Africa, it is much lower than in other countries.”
Monetary reform has been delayed by the failure of countries in the region to meet the West African Economic and Monetary Union’s convergence criterion of a 3% fiscal deficit target by 2024. Ivoire shares the CFA franc currency with seven of its neighbours.
“With Covid, the war in Ukraine, etc., the convergence criteria have been put on hold,” he said. “At the regional level, the convergence deadline has been pushed back to 2027.”
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