In early February 2020, weeks before Covid-19 sent the world into lockdown, the Republic of Ghana stormed the debt capital markets with a $3 billion Eurobond. The deal marked the longest-ever bond from sub-Saharan Africa, with a 40-year maturity. At a time when developed market investors were in a desperate search for yield, it priced at just below 9%.
Although bankers lauded the deal at the time, Ghana was borrowing far too much. In February 2023, the country defaulted on its Eurobonds. Before a later restructuring of local-currency debt, almost half of its government revenue was going on interest payments, according to Fitch Ratings.
Ghana is far from alone.
Frontier-market sovereign debt levels mushroomed in the 2010s on the back of low interest rates in the developed markets. Meanwhile, as the population and infrastructure needs of developing countries have risen, Chinese policy lenders have, until recently, filled the gaps left by public-sector lenders from the West.
Indeed,
