UEMOA member states’ budget execution in 2017 resulted in an aggravation of budget deficits in comparison to 2016, in conjunction with increases in investment and current expenditure. In this context the UEMOA states have resorted to sovereign debt emissions to cover their resource needs. The outstanding amount of their West African CFA franc securities represented 14.5% of GDP in 2017, mostly bonds, around 84.7% of the total emitted on local markets. The fundraising capacity offered by the regional market is to be put to its recent structural changes and the advent of new entities namely, UEMOA bonds – a regional agent for the promotion of public securities in the zone, Treasury value specialists, advisors to the debt issuance and management policy. As well as the creation of new products such as (i) concurrent bond issues (unique issuance of several bonds with different tenors); (ii) synthetic collateralised obligations (representing multiple bullet loans); and (iii) Islamic obligations for sharia-compliant bonds (sukuk). The access to international capital markets via eurobonds has developed itself within the UEMOA zone as a result of the struggle for commercial banks to engage over long-term maturities in combination with pressure on liquidity over the course of 2017.
Regional Markets
During 2017 the global amount of emissions on government debt reached CFA3.7trn (€5.6bn), as opposed to CFA4.4trn (€6.6bn) in 2016. The fall in value of issues includes the purchases of government securities made by Côte d’Ivoire of CFA99.2bn (€148.8m) and Senegal of CFA20.9bn (€31.4m).
The share of Treasury bonds in the mobilisation of resources on the market stood at 57.3% in 2017 (against 72.3% in 2016) as a result of the Ivorian Treasury’s decision to increase the duration of their debt and build a reference rate curve. Securities with maturities of three and five years were the most popular, representing a total of 75.1% of the global volume of bonds auctioned.
In the Treasury bill compartment 93 Treasury bill were issued in 2017 totalling CFA1.6trn (€2.4bn). Specifically, six- and 12-month maturities were the most solicited, representing a value of 61.4% of bonds issued. In 2017 the weighted average interest rate on warrants was raised to 5.71% against 4.72% in 2016. The outstanding amount of government securities was CFA9.6trn (€14.4bn) or 14.5% of GDP at end-2017 against CFA8.6trn (€12.9bn), or 14.6% of GDP in 2016.
International Markets
Côte d’Ivoire and Senegal were the only countries to have raised resources on international markets by issuing eurobonds. In Côte d’Ivoire, the total mobilised was CFA1.1trn (€1.7bn), divided between (i) a US dollar issuance programme of $1.25bn, and (ii) a transaction of €625m. Senegal launched a US dollar issuance programme worth $1.1bn. Noteworthy is the return in the first quarter of 2018, of the Côte d’Ivoire and Senegal markets, for mobilised amounts of €1.7bn and $2.2bn, respectively.
Secondary Market
The transaction flow on the Bourse Régionale des Valeurs Mobilières (BRVM) sub-fund bonds was weak and generated CFA33.1bn (€49.7m), which was a 66.9% decrease compared to 2016. The capitalisation of the sub-fund rose 18.3% reaching CFA3trn (€4.5bn), against CFA2.5trn (€3.8bn) in 2016, as a result of seven new bond lines. In 2017 CFA150.6bn (€225.9m) in interest was paid to investors for bonds listed on the bourse.
Outlook
The expected investment increase in UEMOA in the next five years calls for important state action on domestic and international markets. The tightening of financial terms for UEMOA members could become an alternative to eurobonds as a means of capital mobilisation at an affordable rate. Usage of these bonds that are often pegged to currencies, which fluctuate against the West African CFA franc in international markets, will require a prudent medium and long-term management of public finances. Regionally, major innovations in instrument standardisation and the launch of products in capital markets will also assist governments in raising long-term maturity funds.
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