Wenjie Chen, the Deputy Division Chief of Regional Studies in the African Department at the International Monetary Fund (IMF), has advised Sub-Saharan African (SSA) countries, including Ghana, to utilize borrowed funds in productive sectors of the economy that yield returns.
In an interview, Chen emphasized the importance of directing borrowed funds into infrastructure spending, social spending (such as health and education), which can stimulate economic activity and generate larger tax returns for the economy.
She highlighted that these funds could then be used to repay debt and invest in other growth-inducing projects.
Nonetheless, Chen expressed concern that a significant portion of borrowed funds, including Eurobonds, is being used to repay debt rather than investing in productive sectors.
Meanwhile, she warned that several countries face rollover risks due to large repayments and urged SSA countries to focus on boosting domestic revenue mobilization to raise funds domestically.
While acknowledging the benefits of issuing Eurobonds, such as accessing additional financing sources and diversifying funding, Chen also cautioned about the foreign exchange risks associated with these debt instruments.
The advice comes amidst growing concerns about the management of debt and the sustainability of borrowing for SSA countries.