SOVEREIGN DEBT, CAPITAL MARKETS

The government of the Kingdom of Eswatini got parliamentary approval to raise E5 billion through issuing of bonds at the Johannesburg stock exchange (JSE)  last week. The news of the approval got the nation pondering on issues of a viability of such an undertaking and what it means for the economy. I will utilise this week’s column to weigh in on the matter.

Capital Markets

Capital markets are the most efficient modality to raise funds, while a country maintains sovereignty. I say this because funds mobilised through capital markets do not come with any conditions as would bilateral and multilateral funding. Funds mobilised by a nation through capital markets give flexibility to the government of the day to push the agenda of the day and advance national priorities.

The government just needs to be able to pay the interests on the agreed dates and repay the full investment when it falls due. This is a bold undertaking by the government of the Kingdom of Eswatini, and we are following in the footsteps of other African Countries like Ghana who have issued Euro denominated bonds in European stock exchanges and they have paid off these obligations. Investors are begging to have a fresh look at bonds issued by African countries and the risk outlook applied by traditional landing institutions is being re-evaluated. We must commend the shift in resource mobilisation undertaken by the Government of the Kingdom, however bold as it may be it does come with its risks.

Risks

Though bonds allow for a nation to exercise her sovereignty, it does not absolve the nation from honouring its sovereign bond. At this point we are told of the bond amount but without much details of what the funds mobilised will be utilised for. It would be detrimental for the government to mobilise this hefty sum to pay for daily operational expenses. We need to raise the money to finance strategic investments that will increase the fiscal space and contribute positively to the gross domestic produce (GDP) of the country. We need to push for strategic investments that will generate income or generate new sources of tax to ensure that the country is able to repay the debt.

Learning from Ghana, we can invest in energy to catalyse growth or invest the funds in the high yield and low investment technology sector of Eswatini. We need to be careful where and how we invest the money because all debt will eventually fall due and when the bonds mature; the government will need to have the E5 billion to repay the investors, including the periodic interests that need to be paid. This brings me now to the issue of ability to repay the obligations. We are also putting ourselves at the whim of credit rating agencies.

Ability to service the Debt

I am more concerned about our ability to service the obligation as a country. We are currently grappling with an apparent cash-flow problem evident in the delay in paying scholarships, regardless of the explanations that one conjures, it all points to a serious cash flow problem which we hope the capable finance ministry will be able to arrest before it gets out of hand. One wonders if there is a plan to turn the country’s fiscal position around such that when the bonds mature we have enough funds to pay our obligations. I struggle to see how we will be in a position to repay this large debt that we will be taking on as a country.

A few years ago the very government struggled paying off a bond listed in the Eswatini Stock Exchange, and they had to re-issue it a luxury which we will not have on internationally listed bonds. I call upon the finance ministry to present a plan on how this debt is to be serviced. The nation deserves to know before the funds are mobilised. I do not believe it is sufficient to tell the nation that we have not yet reached the 60 per cent debt to GDP ratio, those are but semantics. The ratio is not a sufficient condition as a measure of the nation’s ability to borrow funds, what really matters is the ability to service the obligation.

Reforms

We need robust reforms to strengthen our fiscal position as a country. We need to ensure that we collect enough taxes, and close all loop holes in our tax system to ensure that all contribute to the tax pool in accurate magnitude. If we improve on our revenue collection, then we can take courage in the 60 per cent ratio. Furthermore, we need to ensure that the financing package is approved with strategic investments that will create broad-based growth, catalyse meaningful job creation for our people and ensure adequate social safety nets and social security for our people. I really need to see a plan, a proper analysis of how taking this massive debt will benefit us as a nation and how it works for the man on the street. How are we planning on getting each citizen ready to pay the debt?

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