This Tiny African Nation Could Be Next to Sell a Eurobond

(Bloomberg) -- Another African country is considering selling dollar debt -- but its international debt market debut may be hindered by its economy being too small.

Swaziland is debating whether to issue a Eurobond and should decide by January or February, Bheki Bhembe, principal secretary at the Finance Ministry, said by phone Tuesday. The problem is that the country would probably need to raise a minimum of $500 million if it were to tap dollar-debt markets, and its gross domestic product for 2016 was only $3.7 billion.

“It’s a small economy,” Bhembe said. “That has been the debate going on. We don’t have a concrete plan at this stage.”

Swaziland, with 1.3 million people, is a landlocked country surrounded by South Africa and Mozambique and is smaller than New Jersey. Sugar and soft-drink concentrates are the biggest foreign-exchange earners, according to the Central Intelligence Agency.

Size hasn’t stopped other countries from issuing in the recent past. Suriname, which has a smaller economy and a population that’s less than half of Swaziland’s, sold $550 million in dollar debt a year ago.

Swaziland’s government would use the proceeds to fund new power generation, dams, and build a rail link to South Africa if it were to undertake the sale, Bhembe said.

Moody’s Investors Service last month assigned Swaziland a first-time rating of B2, the fifth-highest junk assessment, with a negative outlook. It estimated public debt at about 25 percent of GDP at the end of 2016, up from about 10 percent a year earlier. While the government plans to trim the fiscal deficit to 8.3 percent of GDP in 2017-18, substantial funding needs remain, Moody’s said.

The economy will probably grow by 0.3 percent this year, after contracting slightly in 2016, according to the International Monetary Fund.

Following a drought in 2015 and 2016 that hurt agricultural production, the government resorted to borrowing from the central bank to fund the budget deficit, which reached 10.5 percent of GDP last year, the Washington-based lender said in September.

Debt “has been growing fast, that’s the concern,” Bhembe said.

©2017 Bloomberg L.P.