African leaders have been cautioned to be circumspect with debt forgiveness calls, as they have a great tendency to not only disturb the bond market but also make it difficult for successful future bond issuance by African countries.

Calls are rife that with the havoc caused to African countries due to the COVID-19 pandemic, one of the generous moves that the Bretton Wood institutions and other international bond markets can do to help the many developing economies in Africa is forgiven their debts.

But the Group CEO of Ecobank, Ade Ayeyemi, and the CEO of Equity Group Holding, James Mwangi, strongly disagree with the debt forgiveness position for the bond market and are rather calling for restructuring the payment duration.

“When you go to the market to issue money, the market is looking at your current and past behaviour – including your plan on what you want to do with the money. Therefore, all the countries that have proper plans – which have behaved properly in the past, I think will be able to get to the market and get their deals done. The question of forgiveness is not as helpful. You can restructure your obligations, but forgiveness is not helpful. This is because your debt is somebody’s savings,” Mr. Ayeyemi noted.

Speaking at the Bloomberg Invest Global virtual conference on the theme ‘Weathering Market Turbulence in the Age of COVID-19, the Macro View of the Middle East and Africa’, Mr. Ayeyemi stressed that it is very important to think through before African leaders start talking about forgiveness of debt, especially for those that are raised via commercial channels.

“I think all the countries and organizations which have proper plans on how to revive their economy, on how to put the money to use, on how to plan a proper payback will be the ones that are acceptable to the market,” he added.

His banking colleague and CEO of Equity Group Holding, James Mwangi, also intimated that markets function properly because they are predictable; and debt-forgiveness is not part of the predictable mechanisms of a market.

“Essentially, it talks about the creditworthiness of a country; and to a great extent, forgiveness is a form of default. What it essentially does is bring about distortions in the market. We all need to be conscious of the intended consequences,” he added.

The banking executives who, arguably, manage West and East Africa’s regional biggest lenders, believe African leaders need to keep high credibility on the bond markets – local or international – to ensure their ability to raise bonds at good coupon rates that will be meaningful to inject into their economy.

Already, the International Monetary Fund (IMF) has projected that Africa’s economic growth will shrink by an unprecedented 1.6 percent in 2020 amid tighter financial conditions, a sharp decline in key export prices, and severe disruptions to economic activity linked to the pandemic.

Anticipating the upcoming turbulence, key stakeholders – including the IMF and World Bank, sovereign governments such as France, and thought-leaders in think-tanks such as the Brookings Institute – have all called for debt relief to encourage post-coronavirus economic recovery. Indeed, on April 14 the IMF approved US$500million to cancel six months of debt payments for 25 countries – 19 of which are in Africa.