Eurobonds, debt sustainability and macroeconomic performance in Africa: Synthetic control experiments.

There has been a strong wave of Eurobond issuances by Africa's frontier market economies since the start of the century. But it is not clear how these issuances have affected economic performance. This paper uses synthetic control experiments to conduct comparative case study analyses of the impacts of Eurobond issuances on economic growth, debt sustainability, and domestic capital markets. Ex post, we compare the trajectories of the relevant macroeconomic outcomes against their synthetically constructed business-as-usual counterfactual in an environment with no Eurobond issuance. The results show that, on average, sovereign Eurobond issuances have led to improvements in per capita GDP in Africa by about 10 percent above the counterfactual, business-as-usual scenario. Although most issuances were within 3 percent of GDP, they potentially led to about 13 percentage point acceleration in the debt-to-GDP ratios after ten years, compared to the counterfactual. Public capital accumulation is, on average, faster in the first two to three years following an issuance in countries with positive correlations. • Eurobond issuances by African sovereigns surged in the 2000s, with over 125 instruments issued by 21 African sovereigns. • We conduct synthetic control experiments, comparing relevant macro-outcomes with their counterfactuals under no issuance. • Eurobond have had a noticeable positive effect on incomes, about 10 percent annual improvement above the counterfactual. • But debt sustainability risks from Eurobond issuances are heightened by 13 percent above the counterfactual within 10 years. • Downside risks from Eurobonds should be actively managed to remain a useful source of financing and development in Africa. [ABSTRACT FROM AUTHOR]