In 2007 Ghana became the first sub-Saharan African country (outside South Africa) to issue a Eurobond. Over the following fifteen years, two dozen African sovereigns followed, borrowing tens of billions of dollars on international capital markets. This Eurobond wave reshaped African public finance — and set up the debt distress of the 2020s. This module covers how Eurobonds work, why countries embraced them, and the trap they can become.
What a Eurobond is and how it is priced
A Eurobond (in this context) is a bond issued by a sovereign on international markets, in a hard currency (usually US dollars), to foreign investors. Issuance is via book-building (banks gauge investor demand and set the price). The key number is the spread — the extra yield over a risk-free benchmark (US Treasuries of the same maturity) that the country must pay to compensate investors for its default risk. The spread (often tracked via the EMBI index) is the market's real-time verdict on the country's creditworthiness: it widens when risk rises and narrows when confidence improves, and a country's spread is watched as a barometer of market access.
Credit ratings
The rating agencies and the Africa controversy
Sovereign credit ratings from Moody's, S&P, and Fitch — from investment grade (low risk) down through speculative/'junk' grades — shape who can buy a country's debt and at what cost (many institutional investors are restricted to investment-grade bonds). A downgrade raises borrowing costs and can trigger forced selling. African governments and the African Union have argued that the agencies systematically misrate African sovereigns — applying subjective negative perceptions, lacking local knowledge, and using procyclical methods that worsen crises (downgrading precisely when a country is stressed, raising its costs further). The debate has spurred calls for an African credit rating agency. The substantive point for an analyst: ratings are influential but imperfect signals shaped by perception as well as fundamentals (the de jure/de facto and measurement themes recur), and a country's access depends heavily on them.
The African Eurobond wave
Why did African sovereigns rush to Eurobonds from 2007 and especially 2014–2019? The appeal was real: access to large amounts of capital quickly, in sizes domestic markets could not provide; no policy conditionality (unlike IMF or World Bank money — you can spend it as you like, the attraction that the next module's concessional finance lacks); long maturities and, in the era of ultra-low global interest rates after 2008, historically attractive coupons; and a signal of having 'arrived' on global markets. Global investors, hunting for yield in a low-rate world, were eager buyers. For a while it looked like a liberation from the constraints of aid and the IMF.
The trap: sudden stops and the refinancing wall
When the music stops
Eurobonds carry two linked dangers that the boom years masked. The sudden stop (Calvo): foreign capital flows that arrive in good times can reverse abruptly when global conditions or country sentiment shift — investors stop buying and start selling, the spread blows out, and market access vanishes overnight, regardless of the country's own actions. The refinancing wall: Eurobonds are bullet maturities (the whole principal falls due at once, typically after 10 years), so the 2014–2019 issuance created a wall of repayments concentrated in the early-to-mid 2020s — exactly when global interest rates rose sharply (the US hiking cycle, the global-financial-cycle material of the International Macro course). The result: in 2022–2023 African frontier issuers were effectively locked out of the Eurobond market (spreads too high to refinance), facing large hard-currency repayments they could not roll over, in depreciated currencies — tipping several toward distress and the restructurings of module 7. The Eurobond wave's hard-currency, bullet-maturity, foreign-investor structure (original sin in action) turned market access into a refinancing trap when global conditions turned.
Market access versus concessional finance
The deeper question the Eurobond era poses is the trade-off between commercial and concessional finance. Eurobonds offer freedom (no conditionality) and size but at the price of currency risk, rollover/sudden-stop risk, and market-determined (and procyclical) cost. Concessional finance (next module) offers cheaper, longer, more stable money but with conditionality and limited size. The mistake of the boom was to treat Eurobonds as a free liberation rather than as a riskier, more expensive (in risk-adjusted terms) source whose dangers only appear when global conditions turn. The sophisticated view: market access is a valuable option to be used prudently — for genuinely productive investment, with attention to the maturity structure and the refinancing profile, and not as a way to escape the discipline that concessional lenders impose. The freedom Eurobonds offer includes the freedom to over-borrow.
Exercise
A country issued a $1 billion 10-year Eurobond in 2015 at a 6% coupon, to general acclaim, and used much of it for recurrent spending and a few prestige projects. In 2024 the bond is maturing, global interest rates have risen sharply, the country's currency has depreciated 40%, and its spread has blown out so that a new issue would cost 14%. (1) Explain the appeal of the 2015 issuance and why conditionality-free money was attractive. (2) Diagnose the 2024 situation using sudden stop and refinancing wall. (3) Explain how the currency depreciation compounds the problem. (4) What would prudent use of Eurobond access have looked like, contrasting with what happened?