DAKAR (Reuters) - Rapid economic growth in West Africa’s CFA-franc zone will keep debt loads manageable despite a recent wave of heavy borrowing by governments, the governor of the regional central bank told Reuters.
The Economic and Monetary Union of West Africa (UEMOA) plans to issue 2,865 billion CFA francs ($4.9 billion) in debt this year, down 22.4 percent from 2014 when both Ivory Coast and Senegal issued Eurobonds.
UEMOA comprises Benin, Burkina Faso, Ivory Coast, Mali, Guinea-Bissau, Senegal, Niger and Togo.
Amid a boom in Eurobonds across the continent, the International Monetary Fund has warned against excessive enthusiasm for such borrowing, saying African countries may face exchange rate risks and problems repaying dollar-denominated debt.
Tiemoko Meyliet Kone, governor of West Africa’s BCEAO central bank, acknowledged the dollar’s strength over the past year against the euro, to which the CFA franc is pegged. However, he said the IMF, in its most recent analysis of UEMOA debt, saw only a weak to moderate risk of overindebtedness for the zone’s members.
“What’s more, the union’s growth perspectives are favorable, with a medium-term growth rate above 7 percent, and show that the debt profile should continue to remain sustainable in the member states as a whole,” Kone told Reuters in a written response to questions on Wednesday for the Reuters Africa Investment Summit.
Senegal’s President Macky Sall told the summit this week that the rising dollar was pushing up the cost of goods in his import-dependent economy.
“The appreciation of the dollar against the euro will have a greater impact on exports than imports,” Kone said. “The trade balance of Union countries should improve by nearly 200 billion (CFA francs), or around 0.4 percent of 2015 GDP.”
As a net importer of oil, the zone will also benefit from the drop in the price of crude, Kone said.
However, falling gold prices will hurt the region, he said. Gold is UEMOA’s biggest export after cocoa and now accounts for a quarter of regional exports.
Kone said average annual inflation was forecast to rise to 0.8 percent this year, from -0.2 percent last year.
The central bank on Wednesday forecast economic growth of 7.2 percent this year for the union, up from 6.6 percent in 2014 and outpacing an IMF prediction for sub-Saharan Africa of 5.8 percent.
The bulk of this year’s planned debt issuance is composed of CFA franc-denominated treasury bills, though Ivory Coast, the zone’s largest economy, issued a $1 billion Eurobond last month and is mulling a first-time 200 billion CFA franc sukuk, an Islamic bond.
The slowdown in China’s economy had yet to have an impact on Chinese investments in the zone, which were expected to be around 200 billion CFA francs this year, Kone said.
“Chinese (foreign direct investment) received by Union member states will remain at around 15 percent of a total amount of 1,300 billion (CFA), which is an increase of around 10 percent compared with 2014,” he said.
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Writing by Joe Bavier; Editing by David Lewis and Susan Fenton